Nestle fends off cost inflation, helped by higher prices

By Silke Koltrowitz

ZURICH (Reuters) – Nestle on Thursday confirmed it expects to grow sales around 5% and keep margins broadly stable this year after higher pet food, dairy and coffee prices did not deter consumers in the first quarter, forecasting more price increases ahead.

Russia’s invasion of Ukraine has forced consumer goods companies to rethink their strategy in the country, while at the same time further pushing up costs for energy and commodities, threatening food groups’ profitability.

But so far the world’s biggest food group, with well-known brands like Nescafe coffee and KitKat chocolate, has been able to pass higher costs on to customers.

“We stepped up pricing in a responsible manner and saw sustained consumer demand. Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year,” the company said.

The group based in Vevey on Lake Geneva confirmed it expects organic sales to rise by around 5% this year, with an underlying trading operating profit margin between 17% and 17.5%, compared to 17.4% in 2021.

Peer Danone kept its financial goals unchanged on Wednesday after like-for-like sales rose 7.1% in the first quarter.

At Nestle organic sales, which strip out currency swings and M&A, were up 7.6%, beating a 5.0% average forecast in a company-compiled consensus thanks to price increases of 5.2%.

Prices rose most – by 8.5% – in the group’s No.1 market, North America. In terms of products, petcare prices were up most, by 7.7%. In Nestle’s biggest category, which includes coffee, prices increased 4.9%.

“Organic growth now excludes the Russia region, given significantly disrupted trading conditions and Nestle’s decision to focus on providing essential food,” said the group, which had sales of 1.7 billion francs ($1.8 billion) in Russia last year.

Nestle has stopped selling non-essential products in Russia, but still supplies infant formula and medical nutrition despite pushback from employees in Ukraine.

Shares in the group, down just over 4% this year, were 1.7% higher at 0714 GMT, making it the best performer in the European food sector index.

Jefferies analyst Martin Deboo said he expected a debate on why Nestle isn’t raising top-line guidance, while Bernstein’s Bruno Monteyne applauded “pricing power at work” as Nestle confirmed margin guidance amid increased commodity prices.

“Nestle is in a strong position thanks to its product portfolio, with more than one third in premium products,” Vontobel’s Jean-Philippe Bertschy said.

($1 = 0.9499 Swiss francs)

(Reporting by Silke Koltrowitz; Editing by Miranda Murray, Subhranshu Sahu and Jan Harvey)