Nestlé has delivered its strongest growth in first-half sales in more than a decade as consumer buying habits established during the pandemic boosted key product lines. However, the world’s largest food company joined other consumer goods firms in warning that rising commodity prices was putting pressure on margins.
Nestlé’s overall organic sales growth reached 8.1% during the six month period, having accelerated slightly in the second quarter. The group said its performance was driven by continued momentum in retail sales, a return to growth in out-of-home channels, increased pricing, and market share gains.
By product category, the largest contributor to the group’s organic growth was coffee, fuelled by demand for its three main brands – Nescafé, Nespresso, and Starbucks. Nespresso sales were up 14.6%, whilst Starbucks products posted 16.7% growth.
Nestlé’s Purina PetCare unit saw double-digit growth, whilst ready meals and cooking aids posted high single-digit growth. The company’s vegetarian and plant-based food offerings also continued to see double-digit growth, whilst dairy reported high single-digit growth. Confectionery recorded double-digit growth, supported by a strong sales development in impulse products.
Sales in Nestlé’s Health Science grew 13.6% due to strong demand for vitamins, minerals and supplements. Infant Nutrition saw a sales decrease, impacted by lower birth rates in the context of the pandemic, whilst water returned to growth, led by its S. Pellegrino and Perrier brands.
Meanwhile, Nestlé noted that rising commodity costs and inflation have already begun to pressure margins. Other companies in the sector, including Unilever, Procter & Gamble, and PepsiCo have recently issued similar warnings that they are facing pressure from the rising cost of raw materials, packaging and transport, with all planning price rises as a result.
Nestlé stated that input cost inflation was expected to reach around 4% this year and the company would accelerate price increases in the second half, with a raise of about 2% needed to offset the higher expenses. It raised prices by 1.3% in the first half and said a better product mix and efficiencies would also help.
Nestlé revealed that its profit margin was flat at 17.4% for the first half. It now expects the full-year margin to come in at around 17.5% compared to 17.7% in 2020. This reflects the time delay between higher commodity prices and the pass-through of those costs to consumers, with a margin improvement expected from 2022.
Analysts were impressed by Nestlé’s growth figures and noted that the company appeared better placed than others in the consumer sector to manage rising prices given its strong product offering and favourable mix.
The Swiss firm said today that it was raising its full-year guidance on organic sales growth to 5-6% from 3.6%.
Nestlé’s CEO, Mark Schneider, commented: “Organic growth was strong across most geographies and categories, with robust momentum in retail sales and a return to growth in out-of-home channels.
“Through fast-paced innovation, strong brand support, increased digitalization and stringent portfolio management we have built the foundation for delivering consistent mid single-digit organic growth for years to come.”
