The world’s largest food manufacturer has posted its strongest growth in developed markets in a decade as it benefitted from price rises and robust demand for coffee, pet food, and vegan products.
Over the year to 31 December, Nestlé’s sales rose 7.5% on an organic basis to CHF87.1bn (€83.2bn), of which 2% came from price increases to offset “significant cost inflation”. This trend accelerated in the final quarter of the year, with prices up 3.1%.
The group stated that growth was also supported by continued momentum in retail sales, a steady recovery of out-of-home channels, and market share gains.
Nestlé’s coffee business was the single largest contributor to growth in 2021. Sales of Starbucks-branded products jumped 17.1% to CHF3.1bn, whilst the Nespresso division reported growth of 8.8% to CHF6.4bn.
The Purina pet food unit recorded double-digit growth, as did sales of vegetarian and vegan foods, which rose to more than CHF800m. Dairy saw mid-single-digit growth, whilst sales of confectionery grew at a high single-digit rate.
Meanwhile, Nestlé’s Health Science unit recorded double-digit growth, reflecting strong demand for vitamins, minerals, and supplements.
The group’s performance came in ahead of analysts’ expectations, although Nestlé noted underlying profit margins had narrowed to 30bps to 17.4% as a result of delays in passing on higher costs to consumers.
Like other firms in the sector, Nestlé’s margin was impacted by inflation in commodities, packaging, freight, and energy, but also integration expenses from acquisitions. As a result, underlying trading operating profit only increased by 1.4% to CHF15.1bn.
“We limited the impact of exceptional cost inflation through diligent cost management and responsible pricing,” said Mark Schneider, Chief Executive.
Nestlé sees its robust growth continuing in 2022, with underlying sales expected to increase 5% as inflationary pressure across its core markets is passed on to consumers and spending strengthens as markets recover from the pandemic.
Schneider noted that there was a certain element of caution to its guidance for 2022 given the inflationary environment. The company expects underlying margins of between 17% and 17.5% for the next 12 months, relatively stable compared to last year’s figure.
“It is a safe assumption that our input cost increases for 2022 will be higher than 2021, that is something that we have to reflect in our pricing,” said Schneider, declining to give a precise forecast in a “super volatile environment”.
“There is almost no place in the company that is exempt of inflation now. Some of these things you can hedge against, some not.”
Commenting on the results, Vontobel analyst Jean-Philippe Bertschy highlighted the cost pressures but said “the fundamentals have rarely been as strong”, adding that Nestlé was in a better position than many of its rivals.
NAM Implications:
- Nestlé is big enough in most markets to be able to ensure appropriate price rises across its brand and retail portfolios.
- “Significant cost inflation” has been factored into its price increases…
- …in a “super volatile environment”.
- Rivals need to reassess relative competitive appeal, by category, retailer and geography…
- ..Now.
