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A-Brands

Nestlé Raises Full-Year Expectations, As Price Increases Mitigate Inflation

Nestlé has raised its sales guidance for the full year, saying it now expects full-year organic growth of 6% to 7% after strong coffee sales and price hikes pushed organic sales 6.5% higher in its third quarter.

The world's biggest food group is facing pressure on margins from rising input costs, but it kept its outlook for a stable margin this year as price increases of 2.1% in the third quarter helped mitigate input cost inflation, it said.

"We are pleased with Nestlé’s strong organic growth in the nine months, driven by broad-based contributions from most geographies and categories," commented Mark Schneider, Nestlé chief executive.

"The relentless focus of our teams on local execution and agility enabled us to navigate input cost inflation and supply chain constraints. In the third quarter, we increased pricing in a responsible manner, while maintaining strong real internal growth. Investments in innovation, digitalisation and sustainability further supported growth by enhancing the relevance and differentiation of our offerings."

Supply Chains Under Pressure

Nestlé has guided for a 4% increase in input costs this year and said last month that cost inflation would likely be even higher in 2022.

Global supply chains are under strain due to factors such as a resurgence of COVID-19 cases in Asia and staff shortages in the United States.

Peer Danone warned on Tuesday of growing inflationary pressures next year, while Procter & Gamble Co said it would raise prices in the United States to counter higher costs.

Nine-Month Period

At Nestlé, organic sales - which strip out acquisitions, divestitures and currency swings - rose 7.6% in the first nine months, the group said in a statement, beating a forecast for a 6.6% increase in a company-compiled consensus.

Strong coffee sales were a driver, with Starbucks-branded products posting 15.5% growth and Nespresso portioned coffee also up 11%. Out-of-home consumption of food and drinks - severely hit during the pandemic - recovered further, Nestlé said.

The Swiss company had previously raised its full-year guidance to 5%-6% in July. It still expects an underlying trading operating profit margin at about 17.5% this year and a "continued moderate margin improvement" in the mid term.

Analyst Viewpoint

"[Nestlé] knocked it out of the park for the third quarter," Kepler Cheuvreux analyst Jon Cox said, adding the quarterly pricing component was the strongest since the first half of 2015.

"Most companies with strong brands will be able to pass on prices and I think the market still does not get that," he said.


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

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