Nestlé upgrades business outlook amid historic sales growth, as KitKat and out-of-home sales shine

(Image Credits: Nestlé).

27 Jul 2023 --- Nestlé has reported strong organic growth of 8.7% in the first half of 2023, growing faster than in 2022, which saw the highest sales growth of the company in 14 years (8.5%).

The FMCG giant’s total reported sales growth rose by 1.6% to CHF 46.3 billion (US$54.05 billion), despite the negative impact of foreign currency exchange and net divestitures. The company has increased the organic sales growth guidance to a range of 7% to 8%.

E-commerce sales continued to grow, at 13.5%, while out-of-home channels recovered from the pandemic slump. Meanwhile, the confectionery segment of the business reported double-digit growth, fueled by KitKat’s “strong sales.”

Sales by product
By product category, Nestlé has announced that Purina PetCare leads the way with double-digit growth for wet and dry pet food, especially for Purina ONE, Purina Pro Plan and Friskies brands.

According to the Swiss company, coffee also performs well, with a recovery of out-of-home sales and positive results for all brands.

E-commerce sales continued to grow, at 13.5%.Infant Nutrition, Dairy and Confectionery all have achieved double-digit growth, driven by solid demand for Nestlé’s brands and products such as KitKat. Maggi boosts the growth of prepared dishes and cooking aids, while Nestlé Health Science returns to positive growth for vitamins, minerals and supplements.

Water also grows, despite some capacity issues for Perrier, thanks to S.Pellegrino and Acqua Panna.

“We pursued our strategic priorities with discipline and focus in a fast-evolving consumer environment. Based on the strong performance in the first half of the year, we upgrade our organic sales growth outlook for 2023,” says Mark Schneider, CEO at Nestlé.

“At-home consumption post-COVID-19 has normalized, removing a growth drag on some of our categories. Out-of-home channels continue to see strong growth momentum.”

“For the remainder of the year, we are confident that we will deliver a positive combination of volume and mix, an improvement in gross margin and a significant increase in marketing investments.”

Price increases continue
While organic growth reached 8.7%, growth was entirely driven by price increases of 9.5% as volume sold decreased.

The company’s gross margins also decreased “following significant inflation for commodity and packaging costs as well as salaries and wages,” Nestlé explains.

“Pricing, cost efficiencies and portfolio optimization helped to partly offset the impact of cost inflation,” the company notes.

“We're still repairing our gross margin,” Schneider highlights. Nonetheless, he is positive the company might deliver positive volume growth for the remainder of the year.

The margin problems are not new, as the business had to deal in 2022 with what Schneider called a “massive” decrease in margins.While organic growth reached 8.7%, growth was entirely driven by price increases of 9.5%. (Image Credits: Nestlé).

Moreover, Schneider said in April that the price increases the company has engaged in have been “responsible” after two years of cost inflation. Price growth is also lower now than in Q1, which reached 9.8%.

Commodity prices boom
Sugar and cocoa commodity prices skyrocketed in the last few months.

Floods in key cocoa production regions have led to increased raw commodity costs. Moreover, the upcoming 2024 implementation of EU deforestation regulation could also further push up prices of confectionery, which are already affected by soaring sugar prices.

Meanwhile, inflation has caught up with the sugar sector, which is dealing with similar problems to the general food industry, such as high fertilizer prices, increased supply chain costs and El Niño storms. According to the UN Food and Agriculture Organization, sugar prices are 29.7% higher than last year.

Nestlé said this month that sugar reduction is a “top priority” as the company tries to increase the healthiness of its portfolio. However, Nestlé has received criticism this year for inaccurate marketing campaigns of its KitKat cereals and investors urged the company to rebalance its sales toward healthier products.

“Combined with ongoing portfolio management and optimization as well as the continued implementation of our sustainability initiatives, we are well-positioned to grow and to generate value for our stakeholders,” Schneider concludes.

By Marc Cervera

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