Nestlé: Price Hikes Help Offset Rising Costs…for Now

Written by: Matt Britzman | Hargreaves Lansdown

Nestlé reported Q1 sales of CHF 22.2bn (Swiss francs), reflecting organic growth of 7.6%. Volumes and pricing contributed 2.4% and 5.2% respectfully. Growth was broad-based across most geographies and categories, with out-of-home sales (think hospitality) now ahead of pre-pandemic levels.

Full year guidance remains on track, with organic sales growth expected around 5% and underlying trading operating profit margin between 17.0% and 17.5%.

CEO Mark Schneider said, “Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year”. 

The shares rose 1.7% following the announcement. 

Hiking prices to keep things moving in the right direction in the wake of input cost inflation certainly won’t be a course of action management want to have to take. But nonetheless, it’s the position Nestlé finds itself in and doesn’t look likely to go away anytime soon, which adds pressure to the groups volume led strategy. So far, volumes have still been able to move in the right direction aided by the recovery in out-of-home channels that saw demand drop off while restrictions were in place last year. That’s a tailwind that will unwind but management remain confident they can deliver on full-year targets nonetheless. 

Nestlé’s portfolio contains some strong brands from KitKat to Purina pet food which’ll help volumes hold on despite price rises, to some extent. There’s also a big R&D budget which means new products can be churned out to keep the offering fresh. We’re yet to see any real impact from consumers with respect to changing behaviours in the wake of a cost-of-living crises when it comes to branded products, Nestlé’s the latest business to point to premium product ranges as the main growth drivers – that seems to be the place to be right now

Related: Heineken: Beer Performed Well but Inflation Weighs on the Future