Nestle starts year with strongest price increases in decade

Sales rose 7.6% on an organic basis in the first quarter, the company said Thursday. Analysts expected 5.1%.
Image: Bloomberg

Nestle SA reported a healthy gain in revenue as the world’s largest food company started the year with its strongest first-quarter pricing in more than a decade.

Sales rose 7.6% on an organic basis in the first quarter, the company said Thursday. Analysts expected 5.1%. The figures exclude Russia, where Nestle has halted some activities.

Food and beverage companies have been raising prices amid strong demand as consumers return to offices and eat outside of home more often. The sector has benefited from resilient appetite for basic necessities while European industrial companies and carmakers suffer from higher costs and supply-chain bottlenecks.

Nestle shares gained as much as 1.9% in early trading.

Rival Danone SA reported its fastest quarterly sales growth in seven years Wednesday, while Heineken NV’s unusually big price increases helped revenue increase by 36% in the period. While the ability to raise prices on consumers may blunt the impact of higher raw material costs, the risk is that it may eventually drive some shoppers to cheaper alternatives.

“We are getting used to companies beating consensus sales growth expectations this quarter — L’Oreal, Danone and Heineken have all done it — but in our view Nestle is the most impressive yet,” James Edwardes Jones, an analyst at RBC, wrote. He said that the company’s shipment growth is admirable in the context of such strong pricing.

The war in Ukraine has exacerbated food inflation because the country is a major supplier of wheat and sunflower oil. Meanwhile inflation in prices for coffee, plastic and shipping are cutting into profitability at the maker of KitKat chocolate and San Pellegrino water.

Mark Schneider

“Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year,” Chief Executive Officer Mark Schneider said in a statement.

Schneider had faced criticism for continuing to do business in Russia, with Ukrainian politicians even calling him out by name and demanding a full exit. Nestle eventually suspended the vast majority of its production in the country, but Schneider maintains that access to food is a basic right. Nestle now focuses on selling essential products like infant formula and medical nutrition there.

The CEO stuck to his forecast for revenue growth to decelerate to about 5% in 2022. Schneider said in February the company should achieve its previous long-term guidance in coming years, which is for annual revenue increases of 5% to 6%.

The maker of Purina pet food repeated that profitability may decline for a second year in 2022, with its adjusted operating profit margin expected to be 17% to 17.5% this year. The margin was 17.4% in 2021.

© 2022 Bloomberg

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