Nestlé reports profit surge and globally distributed growth despite “unprecedented inflation”

 22 Feb 2024 --- Nestlé has released its full-year results for 2023, revealing robust organic growth of 7.2%, driven by pricing increases of 7.5%. Total reported sales amounted to CHF93.0 billion (US$106 billion), representing a marginal decrease of 1.5% compared to the previous year’s CHF94.4 billion (US$107.6 billion). The Swiss giant saw profits lifted by 20.9% to CHF11.2 billion (US$12.8 billion).

“Unprecedented inflation over the last two years has increased pressure on many consumers and impacted demand for food and beverage products,” comments Mark Schneider, CEO of Nestlé.

“In this challenging context, we delivered strong organic growth and solid margin improvement with increased marketing and other growth investments. Our free cash flow generation returned to historical levels.”

Looking at 2024, Schnieder highlights the Swiss multinational will be prioritizing volume- and mix-led growth with a focus on “active innovation and renovation, premiumization, affordability and more nutritious options.”

“We will continue to focus capital allocation on our fast-growing billionaire brands, which enables us to deliver dependable growth while enhancing brand loyalty.”

The Swiss multinational highlights growth was “well-distributed” across various geographical regions and product categories.“Well-distributed growth”
Nestlé recorded a slight decline in real internal growth (RIG) by -0.3%, impacted by soft consumer demand, capacity constraints and a temporary supply disruption for vitamins, minerals and supplements in the second half. 

Other factors influencing this decline included foreign exchange fluctuations, which reduced sales by 7.8%, as well as net divestitures, negatively impacting sales by 0.9%.

However, growth was “well-distributed” across various geographical regions and product categories.

Underlying earnings per share saw a notable uptick of 8.4% in constant currency, reaching CHF4.80 (US$5.47), while reported earnings per share surged by 23.7% to CHF4.24 (US$4.83).

Additionally, the company’s board has proposed a dividend of CHF3.00 (US$3.4) per share, marking the 29th consecutive year of dividend growth. Looking ahead to 2024, Nestlé anticipates organic sales growth of around 4% and a moderate uptick in the underlying trading operating profit margin. 

Category breakdown
By product category, Purina PetCare was the largest contributor to organic growth, with strong momentum across all channels. Purina ONE, Purina Pro Plan and Friskies all recorded double-digit growth. 

Sales of Purina Pro Plan reached almost CHF3 billion (US$3.4 billion). Coffee saw high single-digit growth, with positive sales developments across brands, supported by strong demand in out-of-home channels.

Infant Nutrition posted high single-digit growth, based on continued momentum for premium infant formula, including human milk oligosaccharides (HMOs) products as well as specialty formulas. 

Dairy reported mid single-digit growth, led by fortified milks, coffee creamers and home-baking products. Confectionery recorded high single-digit growth, fueled by continued double-digit growth for KitKat. 

Prepared dishes and cooking aids posted mid single-digit growth, with robust demand for Maggi across geographies and segments. Water posted mid single-digit growth, led by S.Pellegrino and Acqua Panna. 

Nespresso reported a 5.3% organic growth with pricing at 3.3%, though foreign exchange impacted sales negatively by 6.0%, resulting in a 1.2% decrease in reported sales to CHF6.4 billion (US$7.3 billion). The Vertuo system was a major growth driver for the coffee brand, supported by strong momentum in out-of-home channels, particularly in the office segment. 

Consumer innovation, including home compostable coffee capsules and the Nº 20 limited edition, notably contributed to Nespresso’s growth. While North America saw double-digit growth and Europe reported low single-digit growth, other regions combined saw mid single-digit growth.

Nestlé Health Science recorded low single-digit growth, as continued strong momentum for Medical Nutrition was partly offset by temporary supply constraints in vitamins, minerals and supplements.

By channel, organic growth in retail sales remained robust at 6.5%. E-commerce sales grew by 13.4%, reaching 17.1% of total Group sales. Organic growth of out-of-home channels was 15.9%.

Nestlé is reviewing operating practices in its natural mineral water operations in several countries.Portfolio management
Net divestitures decreased sales by 0.9%, largely related to the divestment of a majority stake in Freshly as well as the disposal of the Gerber Good Start infant formula brand in 2022. The impact on sales from foreign exchange was negative at 7.8%, following significant and broad-based appreciation of the Swiss franc. Total reported sales decreased by 1.5% to CHF93.0 billion (US$106 billion).

Effective September 1, 2023, Nestlé and private equity firm PAI Partners completed the transaction to create a joint venture for Nestlé’s frozen pizza business in Europe.

In September 2023, Nestlé divested Palforzia, its peanut allergy treatment business, to Stallergenes Greer, a biopharmaceutical company that specializes in the diagnosis and treatment of allergies.

In the same month, Nestlé announced an agreement with Advent International to acquire a majority stake in premium chocolate maker Grupo CRM in Brazil. The transaction is expected to close in 2024, subject to customary regulatory approvals. 

Nestlé Waters operations
Following a transformation plan in France, Nestlé is reviewing operating practices in its natural mineral water operations in several countries. With food safety as a primary goal, it flags that practices at some of its production sites may not be in line with the applicable regulatory framework. 

Nestlé “regrets the situation” and is currently engaging with the relevant authorities to ensure that its operating practices are fully compliant. 

The company iterates that its water products “have always been, and remain, safe to drink.”

In addition, it claims the unique mineral composition of its natural mineral water brands has always been consistent with the label.

By Benjamin Ferrer