[BERN] Nestle’s sales rose as the maker of Nespresso and KitKat candy bars increased prices to counter soaring costs for coffee and cocoa.
Revenue grew 2.8 per cent on an organic basis in the first quarter, the Swiss foodmaker said on Thursday (Apr 24), above the 2.6 per cent average estimate of analysts. The bulk of the increase came from price hikes, while its real internal growth – a measure of volumes – rose at a slower pace.
Chief executive officer Laurent Freixe, who took the helm in September after the surprise ouster of Mark Schneider, is seeking to reignite growth by boosting advertising spending and betting on fewer but bigger product initiatives. The company previously announced a 2.5 billion-Swiss franc (S$3.97 billion) cost-cutting plan to free up resources to help drive growth.
Nestle and rivals have been hit by a surge in coffee and cocoa costs over the past year that’s forced them to push up prices or face narrowing margins. Passing on higher costs to shoppers can send them fleeing to cheaper off-brand alternatives, as Nestle discovered when price increases went too far under Schneider.
“We are trying to take as much price as we can to cover our costs while being mindful of the consumer response in a competitive environment,” Freixe said on a call with journalists. “It’s right to highlight soft consumer sentiment, and not only in the US, across the board.”
Most price negotiations in developed markets typically occur at the beginning of the year, meaning the company is largely through that period of hikes in markets like Japan, the US and Europe, Freixe added.
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While the absence of “incremental negatives” provide relief, the report “does not answer longer-term questions” on the portfolio or the shape of the recovery in volume growth, Citigroup analyst Cedric Besnard said in a note.
Nestle reaffirmed its outlook for an improvement in organic sales growth compared with 2024 – when it fell to the lowest level in decades – and for a key profit margin at or above 16 per cent. That guidance is based on the company’s assessment of the direct impact of current tariffs and its ability to adapt.
While some 90 per cent of Nestle’s US manufacturing is done locally, the areas that are most affected by tariffs are the bottled water business, Nespresso capsules and some ingredients, chief financial officer Anna Manz said on the call.
Freixe said he will continue to invest in the US as much as extra capacity there is needed. In regard to the US administration’s crackdown on synthetic food dyes, he said that Nestle can go “100 per cent free” from such food dyes in the foreseeable future.
The slowest growth was in North America, where Freixe pledged to lower prices for frozen pizzas to lure back consumers that had been lost amid fierce price competition. Nestle returned to positive volumes in the region as it gained back market share in “a number of categories” and reduced share losses in frozen foods and coffee creamers, it said. BLOOMBERG
