Nestlé reports Q1 sales decline but expects organic growth projects to spur turnaround

25 Apr 2024 --- Nestlé expected a slow start to 2024, and its three-month sales performance for 2024 matches those expectations. The food giant has revealed total reported sales decreased by 5.9% versus Q1 2023, falling to CHF 22.1 billion (US$24.2 billion).

In Q1 2024, the company reported organic growth of 1.4%, with pricing of 3.4% and real internal growth (RIG) of -2.0%. Overall, organic sales growth was driven by Europe and emerging markets, with a negative impact from North America.

However, the company remains confident that organic growth initiatives will spur a more positive second quarter and annual performance.

The full-year outlook has been confirmed, with the company expecting organic sales growth of around 4% and a moderate increase in the underlying trading operating profit margin.

Nestlé CEO Mark Schneider comments: “We had expected a slow start and see a strong rebound in RIG in the second quarter with reliable delivery for the remainder of the year. A wide range of growth initiatives across the Group are now starting to deliver.”

“In North America, we have stepped up our innovation intensity and commercial activities, primarily in frozen food, which lost ground in the first quarter. The integration plan for Nestlé Health Science’s vitamins, minerals and supplements business is on track, with the turning point expected in the second quarter and strong growth thereafter.”

“Nestlé’s top priorities remain to execute with excellence, leverage our science and nutrition expertise and drive growth with our billionaire brands. We reiterate our 2024 guidance and look ahead with confidence.”

Group sales breakdown
According to Nestlé, the 2% decrease in RIG was impacted by soft consumer demand, particularly in North America, and the temporary supply constraints for vitamins, minerals and supplements.

However, organic growth in Europe and emerging markets more than offset the sales decrease in North America, the company says.

In developed markets, organic growth was -0.4%, with negative RIG and positive pricing. In emerging markets, organic growth was 4.1%, led by pricing with a slightly negative RIG.

Purina PetCare was the largest contributor to organic growth, fueled by continued momentum for science-based premium brands Purina One, Fancy Feast and Friskies.Confectionery sales grew at a mid-single-digit rate, with strong growth for KitKat.

Coffee delivered low single-digit growth, with continued momentum for Nescafé, Nespresso and Starbucks.

Sales in confectionery grew at a mid-single-digit rate, with strong growth for KitKat and seasonal products.

Water delivered mid-single-digit growth, underpinned by the rebound in Perrier and continued momentum for S.Pellegrino.

Infant Nutrition sales grew at a low single-digit rate, based on continued momentum for NAN and HMO products.

However, Nestlé Health Science recorded negative growth, as did sales in dairy, following “a high base of comparison in the prior year.”

Culinary also posted negative growth, as strong demand for Maggi was “more than offset by a sales decline for frozen food in North America.”

Retail and online
Organic growth in retail sales remained robust at 1.4%, while e-commerce sales grew by 6.1%, reaching 17.4% of total Group sales. Organic growth of out-of-home channels was 2.0%.

Net divestitures decreased sales by 0.6%, largely related to the creation of a joint venture with PAI Partners for Nestlé’s frozen pizza business in Europe.Low single-digit growth was recorded in coffee, supported by Nescafé and Nespresso.

The impact on sales from foreign exchange was negative at 6.7%.

Unhealthy concerns
Earlier this month, Nestlé resisted an investor proposal to reduce the levels of fat, salt and sugar in its products. During its Annual General Meeting on April 18, only 11% of shareholders backed a proposal urging the confectionery leader to cut back on “unhealthy” offerings across its portfolio, insisting that it does in fact provide a diverse range of healthier F&B.

The majority (88%) of shareholders voted against the resolution — which was led by NGO ShareAction — while only 11% favored it and 1% abstained from voting.

Paul Bulcke, Nestlé chairman and former CEO, said: “A small group of shareholders led by the NGO ShareAction wants us to disengage from indulgent products. This is wrong. It will restrict Nestlé’s strategic freedom and limit management’s ability to make decisions or responsible decisions.”

“The shareholders’ proposal is not in our best interest, not for our consumers and not for you.”

The resolution was filed last month by a coalition of shareholders holding US$1.68 trillion of Nestlé assets, expressing fears of reputational risks. The company has rejected the resolution’s claims that three-quarters of its sales come from “unhealthy products.”

We recently spoke to Nestlé about how it is navigating record-high cocoa prices.

By Joshua Poole