Nestle limits margin squeeze and raises growth outlook

Nestle limits margin squeeze and raises growth outlook
FILE PHOTO: A logo is pictured on the Nestle research center at Vers-chez-les-Blanc in Lausanne, Switzerland August 20, 2020. REUTERS/Denis Balibouse/

ZURICH :Nestle raised its full-year sales growth forecast to 7-8 per cent on Thursday 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.

Consumer goods businesses are facing soaring input costs for raw materials, energy and transportation, and though many consumers so far seem to accept the resulting price increases, delays in implementing them are squeezing companies’ margins.

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.

Nestle, which makes KitKat chocolate bars Maggi soups among others, said its underlying trading operating profit (UTOP) margin dropped to 16.9 per cent in the first half of 2022 from 17.4 per cent 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.

“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”.

Net profit fell 11.7 per cent to 5.2 billion Swiss francs, hit by higher impairments and taxees ($5.42 billion), missing an average estimate of 5.815 billion Swiss francs in a company-compiled poll of analysts.

Bernstein analyst Bruno Monteyne said the new margin guidance of about 17 per cent, versus 17.0-17.5 per cent 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 per cent from 7.6 per cent in the first three months of the year, beating forecasts thanks to price increases of 7.7 per cent and strong demand for petcare products and coffee, Nestle said.

Nestle shares, down almost 8 per cent this year, were indicated 1.2 per cent higher based on pre-market indications.

($1 = 0.9589 Swiss francs)


Source: Reuters/ga