Nestlé has reported slightly better-than-expected first-quarter sales, as the world's biggest packaged food company increased prices to offset tepid sales volume.
The Swiss company, which makes Maggi stock cubes, Kit Kat chocolate bars and Nescafé coffee, said sales rose 5.6% to CHF 23.5 billion (€23.96 billion) in the quarter ended March 31, beating average estimate of CHF 23.27 billion (€23.73 billion) in a company-provided analyst consensus.
Nestlé increased its prices by 9.8% during the quarter but sales volumes – which the company calls real internal growth – edged down 0.5%.
"Portfolio optimisation efforts and responsible pricing helped to offset the ongoing pressures from two years of cost inflation," Nestlé CEO Mark Schneider said in a statement.
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Squeezed Margins
Consumer goods companies from Unilever to P&G have raised prices sharply for the last two years to battle rising commodities and supply chain costs that squeezed margins during the pandemic and only grew worse when Russia's invasion of Ukraine sent energy expenses to record highs.
Rival Unilever, which posts results later this week, said earlier this year the industry was past "peak inflation, but not yet past peak pricing."
P&G, which makes Tide laundry detergent, Pampers diapers and Gillette razors, last week reported a 10% increase in average prices across its categories during the quarter, and a 3% decline in volumes.
Investors said consumer goods companies should start easing price increases as supply chain costs decline, worried that further hikes could hit market share and margin growth.
Analyst Viewpoint
Commenting on Nestlé's performance, Warren Ackerman of Barclays said, "A strong start to FY23 for Nestle with 1Q23 outperformance vs consensus (+9.3% vs +7.2%) supported by strong pricing of +9.8% and better than expected real internal growth (RIG) of -0.5% (consensus -2%). The RIG beat will be the focus today. There was a big improvement in North America RIG QoQ, continued strong PetCare RIG of +3.5%, while Confectionery continues to do well due to KitKat continuing to grow market share but we wouldn’t extrapolate this.
"RIG was resilient despite continued portfolio optimisation with their SKU rationalisation programme ongoing and we estimate the impact of SKU rationalisation had a similar impact QoQ (ie 70bp headwind), but we would flag the Canadian frozen food exit will come out of the 2Q23 numbers. That said we are seeing early benefits of ‘growing the head'."
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