Nestlé hikes prices by 5.2% as CEO warns “cost inflation continues to increase sharply”

21 Apr 2022 --- In its first-quarter sales report for 2022, Nestlé reveals it has raised prices for its food and other FMCG products by 5.2% to counterbalance the surge in global prices driven by inflation, climate change and conflict. CEO Mark Schneider expects cost inflation to keep rising sharply.

The food giant reports that its total reported sales increased by 5.4% to CHF 22.2 billion (US$23.4 billion) while organic growth was 7.6%.

This gain in revenue shows that the world’s largest food company has started the year with its strongest first-quarter pricing in more than a decade.

“We stepped up pricing in a responsible manner and saw sustained consumer demand,” outlines Schneider. “Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year.”

“The Nestlé team addressed these headwinds and advanced our long-term strategy and sustainability objectives with agility and determination. We confirm our guidance for the year.”

In its guidance, Nestlé expects organic sales growth around 5% and underlying trading operating profit margin between 17.0% and 17.5%. Underlying earnings per share in constant currency and capital efficiency are expected to increase.

CEO Mark Schneider anticipates cost inflation to keep rising sharply (Credit: Nestlé).Nestlé figures now exclude Russia region, given “significantly disrupted” trading conditions and the FMCG giant’s decision to focus on providing essential food, as part of a wider “mass exodus” of F&B brands withdrawing from this market in protest of the Ukraine invasion.

Out-of-home recovery bolsters growth
Steep global price hikes in food and fuel due have been attributed to numerous factors including the COVID-19 pandemic, war in Ukraine and climate change, which are expected to slow global growth by a percentage point to around 3.6% this year, according to forecasts by the International Monetary Fund (IMF). 

The outlook grows dimmer by the day, with the IMF expecting inflation to peak in late 2022 at 9%.

Amid a challenging economic environment, Nestlé has delivered strong organic sales growth with resilient RIG.

Growth was broad-based across most geographies and categories. Organic growth was 6.7% in developed markets, with increased pricing and resilient RIG following a high base of comparison in 2021. Organic growth in emerging markets was 8.8%, with strong RIG and pricing.

Strong performance in coffee and water
By product category, Purina PetCare was the largest contributor to organic growth led by its science-based and premium brands Purina ONE, Purina Pro Plan and Fancy Feast, as well as veterinary products.

Coffee saw high single-digit growth fueled by continued demand for Nescafé, Starbucks and Nespresso. Meanwhile, sales in confectionery grew at a double-digit rate, with strong growth for KitKat and gifting products.

Water posted double-digit growth, driven by a further recovery of out-of-home channels and premium brands S.Pellegrino and Perrier.

Dairy reported mid single-digit growth, with strong sales developments in coffee creamers and ice cream as well as premium and fortified milks. Growth in Infant Nutrition reached a mid single-digit rate, supported by improved sales developments in the Americas and Europe.

Nestlé Health Science recorded mid single-digit growth, reflecting high demand for Medical Nutrition and healthy aging products. Prepared dishes and cooking aids posted low single-digit growth following a high base of comparison in 2021, with continued strong demand for Maggi and Garden Gourmet.

By product category, Purina PetCare was the largest contributor to organic growth.By channel, organic growth in retail sales was 5.9%. Within retail, e-commerce sales grew by 5.0%, building on very strong growth of 39.6% in the first quarter of 2021. Organic growth in out-of-home channels reached 35.6%, with sales exceeding 2019 levels.

Net divestitures decreased sales by 1.3%, largely related to the Nestlé Waters North America transaction, which closed on March 31, 2021. Divestitures were partially offset by acquisitions, including the core brands of The Bountiful Company. Total reported sales increased by 5.4% to CHF 22.2 billion (US$23.4 billion).

Portfolio developments
On April 1, Nestlé Health Science completed the acquisition of a majority stake in Orgain, a plant-based nutrition specialist.

Orgain complements Nestlé Health Science’s existing portfolio of nutrition products that support healthier lives. 

The deal is expected to be “slightly accretive” to Nestlé’s organic growth, while “slightly dilutive” to the group’s underlying trading profit margin in 2022. The agreement includes the option for Nestlé Health Science to fully acquire Orgain in 2024.

In other developments, Nestlé USA is planning a US$675 million investment to build a beverage facility in Arizona to boost its market position in the creamer and flavored milk categories.

The new plant will produce creamers for Nestlé’s portfolio, including the Coffee mate, Coffee mate natural bliss and Starbucks brands, with the ability to expand to additional beverages in the future.

Nestlé and Starbucks initially unveiled a range of non-dairy creamers, an innovation to come out of their global coffee alliance, which is focused on bringing consumers new ways to enjoy coffee at-home in the summer of 2020.

The Starbucks Non-Dairy Creamers are crafted with almond milk and oat milk blend and create a rich and smooth texture with flavors inspired by handcrafted beverages.

By Benjamin Ferrer

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