VEVEY, SWITZERLAND — Organic sales growth and rising input costs should continue to impact financial results for Nestle SA through the rest of this fiscal year and into 2022 as well.
Nestle executives, when giving results for the year’s first nine months on Oct. 20, said they now expect organic sales growth between 6% and 7%, up from a previous guidance of 5% and 6%. Underlying trading operating profit margin for the year is still expected to come in at about 17.5%, reflecting initial time delays between input cost inflation and pricing as well as the one-off integration costs related to the acquisition of The Bountiful Co.’s core brands.
Energy and freight costs have increased recently, said Francois-Xavier Roger, chief financial officer for Nestle, in an Oct. 20 earnings call.
“So if anything, the situation has, therefore, slightly worsened versus July,” he said. “We continue to proactively address these inflationary pressures and have steadily increased prices over the last four quarters, with pricing accelerating to 2.1% in the third quarter. In the nine months, pricing reached 1.6%, a level that we have not seen for the last six years. We expect to progressively increase pricing in a responsible manner over the remainder of 2021 and 2022 with different trends by geography and category.”
How pricing affects a percentage of Nestle sales is difficult to figure, Mr. Roger said.
“It's more related to the specific categories that have been hit by input cost inflation,” he said. “If you look at it this year in 2021, it's much more about, for example, dairy or pet care. So this is where we really started to put through some pricing. As far as coffee is concerned, we did less so far, but we can expect that we will have more pricing on coffee next year because this is really when we will start feeling the pressure on input cost inflation by category.”
Nestle expects input cost inflation to be higher in 2022 but Mr. Roger said he could not say by how much.
“The main reason is that we see still a lot of volatility,” he said. “So I mean it's really moving almost by the day. What we know, though, is that it will be higher than in 2021, but I would say more than the amount, what matters is the way we can mitigate it and the way we can offset it. The main way to offset and mitigate input cost inflation will be pricing, but there are other ways as well like strategic revenue management, like increasing our efficiency program and so forth, and we have covered, I think, part of it.”
Vevey-based Nestle achieved sales of 63.29 billion Swiss francs ($68.88 billion) for the first nine months, which was up 2.2% from 61.91 billion Swiss francs in the same time of the previous year. Organic sales growth was 7.6%. Momentum in retail sales, recovery in out-of-home channels, increased pricing and market share gains all supported sales growth. Net divestitures decreased sales by 3.3%. Nestle recently sold Nestle Waters brands in North America, the Yinlu peanut milk and canned rice porridge businesses in China, and the Herta charcuterie business. Pricing increased sales by 1.6%.
Coffee, behind the momentum of Nescafé, Nespresso and Starbucks, was the largest contributor to organic sales growth. Starbucks products grew nearly 16% in sales, reaching 2.2 billion Swiss francs ($2.4 billion) across 79 markets. Purina PetCare, led by Purina Pro Plan, Fancy Feast and Purina ONE, experienced double-digit growth. Double-digit growth also came in vegetarian and plant-based food items thanks to an expanding product range. The Garden Gourmet range expanded in early October through the launches of vEGGie, a plant-based alternative to eggs, and Vrimp, a plant-based seafood alternative. Nestle Health Science experienced double-digit growth thanks to demand for consumer care products, especially vitamins, minerals and supplements.
Prepared dishes and cooking aids had high single-digit growth based on sales for Maggi, Stouffer’s and Lean Cuisine. Confectionery, supported by KitKat sales, also recorded high single-digit growth. Mid-single-digit growth came in Dairy powered by sustained demand for fortified milks, coffee creamers and ice cream. Water reported mid-single-digit growth with strong demand in North America and emerging markets in the third quarter. Sales declined in Infant Nutrition, which was impacted negatively by lower birth rates globally and a sales decline in China.
E-commerce sales grew by 17% and now account for 14% of total Nestle sales. Organic sales in out-of-home channels, which benefited from the easing of movement restrictions in some geographies, rose 23% while organic sales growth in retail was 7%. In Nestle’s Americas zone, nine-month sales of 24.59 billion Swiss francs ($26.76 billion) were down 1.5% from 24.99 billion Swiss francs in the same time of the previous year. Net divestitures reduced sales by 6%. Organic sales growth was 8%.