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A-Brands

Food Giant Nestlé Limits Margin Squeeze, Raises Growth Outlook

Nestlé raised its full-year sales growth forecast to between 7% and 8% and trimmed its margin guidance after cost inflation hurt the world's biggest food group less than expected and price increases boosted first-half organic sales growth.

Nestlé, which makes KitKat chocolate bars and Maggi soups among others, said its underlying trading operating profit (UTOP) margin dropped to 16.9% in the first half of 2022, from 17.4% a year earlier.

The company cited the lag before prices could be increased and the need for price rises to be balanced so consumers do not buy less or opt for cheaper brands.

Inflationary Pressures

"We limited the impact of unprecedented inflationary pressures and supply chain constraints on our margin development through disciplined cost control and operational efficiencies," chief executive Mark Schneider said in a statement, adding that price increases had been implemented "in a responsible manner".

Rivals Reckitt Benckiser, Unilever and Danone raised their full-year revenue forecasts this week after steep price increases helped them to beat second-quarter sales expectations.

Net Profit Decline

Nestlé's net profit fell 11.7% to CHF 5.2 billion (€5.3 billion), hit by higher impairments and taxes ($5.42 billion), missing an average estimate of CHF 5.815 billion (€5.94 billion) in a company-compiled poll of analysts.

Bernstein analyst Bruno Monteyne said the new margin guidance of about 17%, versus 17.0-17.5% previously, was "still a very strong margin, with a much smaller year-on-year margin decline than most of its European peers".

In the second quarter, underlying sales growth accelerated to 8.7% from 7.6% in the first three months of the year, beating forecasts thanks to price increases of 7.7% and strong demand for petcare products and coffee, Nestlé said.

Nestlé shares, down almost 8% this year, were indicated 1.2% higher based on pre-market indications.

Read More: Nestlé Opens Nescafé Factory In Mexico

News by Reuters, additional reporting by ESM. For more A-Brands news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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