Nestle raises FY outlook as KitKat maker pushes through price hikes
ZURICH -Nestle posted its strongest nine-month sales growth in 14 years on Wednesday and raised its full-year guidance as the world’s largest packaged food company passed on price increases without losing many cash strapped customers.
The KitKat chocolate bar maker reported organic sales, which cut out the impact of currency movements and acquisitions, rising by 8.5 percent in the nine months to end-September.
It was the highest nine-month rise since 2008 and was driven by higher prices aimed at offsetting rising costs.
Still, sales volumes also remained resilient as consumers – already battling higher energy and housing costs – also stuck with its brands like Purina pet food and Nescafe instant coffee.
“We delivered strong organic growth as we continued to adjust prices responsibly to reflect inflation,” chief executive Mark Schneider said in a statement.
Raising prices is a balancing act for Nestle, which wants to protect margins but also does not want to see sales volumes fall as customers seek cheaper alternatives.
Shares were down 0.3 percent in early trading.
For the nine months to end-September, Nestle posted sales of 69.1 billion Swiss francs ($69.4 billion), beating the 68.9 billion francs forecast in a company-gathered consensus of 23 analysts.
Most of the organic growth increase came from higher pricing, accounting for 7.5 percentage points of the 8.5 percent increase, while volumes increased by 1 percentage point over the period.
As a result Nestle raised its full-year outlook, saying it now expected organic growth of “around 8 percent” for 2022, up from a 7 percent to 8 percent increase previously.
The Swiss company also confirmed its target for a trading operating profit margin of around 17 percent.
“Our real internal growth remained resilient despite a high base of comparison and continued supply chain constraints, with limited demand elasticity,” Schneider said.
Still, Schneider raised concerns about the “challenging” economic environment, which he said was hurting the purchasing power of many customers.
Euro zone inflation hit 10 percent in September, while prices increased by 8.2 percent in the United States, stretching the pockets of consumers already spending more on fuel bills and mortgage payments.
Analyst Jon Cox of Kepler Cheuvreux said growing organic sales was a “decent” result for the company given the continued price increases even if third-quarter volumes dipped.
Nestle also announced on Wednesday a deal to buy the Seattle’s Best Coffee business from Starbucks.
($1 = 0.9953 Swiss francs)