Nestlé is set to announce its full-year 2024 results on 13 February and all eyes are on the global food giant after it reported worse-than-expected nine-month organic sales growth last October.
At the time, the company cut its full-year sales outlook and announced a revamp of its senior leadership and operating structure.
Analysts at Barclays noted that while there are many moving parts at Nestlé, petfood is crucial for the company as it is one of the two key categories alongside coffee.
The focus on coffee and cocoa COGS pressure and cost savings details has prevented petfood to be at the front and centre of investor conversations.
Petfood accounts for 20% of group revenues and even more of EBIT (27%), with US petfood the single biggest country/category cell globally at Nestlé, accounting for 12% of group sales.
keeping in mind the above, here are a couple of factors that could impact the performance of Nestlé's petfood business:
Normalisation
After seeing a period of growth, the petfood segment has started to normalise with recent commentary around the category being 'somewhat downbeat,' according to growth Barclays.
In its most recent quarter, Colgate reported flat performance for its petfood business but was optimistic of an inflection in the second half of the year.
The company also flagged weakness in the performance of the category in Europe.
According to NielsenIQ scanner data, Nestlé's European petfood volumes fell 5% in the past couple of months. However, it does not include faster growing channels such as e-commerce.
Colgate indicated higher ambitions in the 'cat' category, which is Nestlé's most important category, comprising around 60% of its pet portfolio.
While Colgate's pet portfolio is very different, Barclays cautioned that it could be something to keep an eye on.
It is interesting to note that Nestlé Purina PetCare announced plans to expand its pyramid-shaped wet cat food in Europe and the United States, as part of Nestlé's focuses on 'fewer, bigger and better' innovations for greater business impact.
Pricing
In the third quarter of 2024, pricing at General Mills was down 5% and Nestlé's pricing was also negative as promotions stepped up.
According to CFO Anna Manz, it reflected normalisation after 25% price increase over last couple of years.
Moreover, a greater range of SKUs have entered the market, driven by increased production capacity.
Estimates from Barclays suggests that up to 25% new capacity has been added in the US and in a simultaneous manner, creating downward pressure on prices.
Nestlé will have spent an an extra CHF 3 billion on petfood capex between 2022 and 2025 to build new plants, the financial expert noted and added, 'Whilst Nestlé US scanner pet volumes picked up this month [February], pricing could be a sting in the tail. Clearly, if Nestlé want Pet to deliver mid-single-digit (MSD) growth, it would be much easier to achieve if pricing were positive.'
