Nestlé is fighting cost inflation, helped by higher prices

Russia’s invasion of Ukraine has forced consumer goods companies to rethink their strategy in the country, while driving up energy and raw material costs further, threatening the profitability of food groups.

But so far the world’s biggest food group, with well-known brands like Nescafé coffee and KitKat chocolate, has been able to pass the higher costs onto customers.

“We have raised prices responsibly and have seen sustained consumer demand. Cost inflation continues to rise sharply, which will require further pricing and mitigation actions over the course of the year,” the company said.

The Vevey-based group on Lake Geneva confirmed it expects organic sales growth of around 5% this year, with an underlying trading operating margin of between 17% and 17.5%, compared to 17, 4% in 2021.

Peer Danone kept its financial targets unchanged on Wednesday after like-for-like sales rose 7.1% in the first quarter.

At Nestlé, organic sales, which exclude currency fluctuations and mergers and acquisitions, rose 7.6%, beating an average forecast of 5.0% in a consensus set by the company thanks to price increases 5.2%.

It was in the group’s largest market, North America, that prices rose the most – by 8.5%. In terms of products, prices for pet products increased the most, by 7.7%. In Nestlé’s largest category, which includes coffee, prices rose 4.9%.

“Organic growth now excludes the Russian region, given significantly disrupted business conditions and Nestlé’s decision to focus on providing essential foods,” said the group, which achieved sales of 1.7 billion. francs ($1.8 billion) in Russia last year.

Nestlé has stopped selling non-essential products in Russia, but still provides infant formula and medical nutrition despite employee refusals in Ukraine.

The group’s shares, down just over 4% this year, were up 1.7% at 07:14 GMT, making it the top performer in the European food sector index.

Jefferies analyst Martin Deboo said he expected a debate over why Nestlé is not raising its forecast, while Bernstein’s Bruno Monteyne applauded ‘price power at work’ as that Nestlé was confirming its margin forecasts in a context of rising raw material prices.

“Nestlé is in a strong position thanks to its product portfolio, with more than a third of premium products,” said Jean-Philippe Bertschy of Vontobel.

($1 = 0.9499 Swiss francs)

(Reporting by Silke Koltrowitz; Editing by Miranda Murray, Subhranshu Sahu and Jan Harvey)

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