Nestlé SA NSRGY 0.08%
said consumers continued snapping up Nescafe coffee and Purina pet food even as the grocery giant hiked prices again to offset rampant cost inflation.
Businesses are grappling with soaring energy, packaging and transportation costs as the pandemic eases. Russia’s invasion of Ukraine has further pushed up the cost of inputs such as cooking oil and grain. US inflation hit a 40-year high in March, while consumer prices in the European Union hit a record high.
On Thursday, Nestlé released first-quarter results that showed buyers have not been put off by its efforts to offset those cost increases. The Swiss company said sales rose 7.6% in the first three months of the year on an organic basis, which excludes currency fluctuations and the impact of mergers and acquisitions. That figure excludes its business in Russia, where it has stopped selling some products.
Overall, reported sales increased 5.4% to 22.2 billion Swiss francs, equivalent to approximately 23.4 billion US dollars. Nestlé – which does not report earnings figures for the first quarter – said overall prices rose 5.2% while volumes rose 2.4%.
Chief Executive Mark Schneider said Nestlé has enjoyed “continued consumer demand” so far, but will raise prices further this year amid persistently soaring inflation.
Price growth was highest in North America at 8.5%, where volumes rose 1.4%. The company said its pet food brand, Purina, was the top contributor to growth in the region, driven by upscale brands and online sales.
RBC analyst James Edwardes Jones described Nestlé’s ability to grow volume despite the sharp acceleration in price growth as “admirable”. Nestlé shares rose 1.5% in early European trade.
Nestlé’s update is the latest indication that shoppers are willing to stick with big brands despite rising prices.
Procter & Gamble Co. on Wednesday posted its biggest quarterly sales increase in decades. However, the maker of Tide laundry detergent and Gillette razors warned that buyers may still be wary of rising prices for household items.
French beauty giant L’Oréal SA on Tuesday reported strong first-quarter sales and said consumer spending patterns had so far not been impacted by inflation.
Nestlé’s gains also offered further clues as to how consumer behavior is changing in the pandemic era, as people return to eating out and living more normally. Nestlé said in North America, its professional business and its Starbucks out-of-home products – which both cater to places like offices and hotels – saw double-digit sales growth.
By contrast, sales of frozen ready meals in North America, which had developed well at the peak of the pandemic, declined. Nestlé’s vitamins, minerals and supplements business grew only slightly after a strong breakthrough from the pandemic amid heightened consumer health concerns.
In Europe, Nestlé’s growth in its coffee division, which includes Nescafe instant coffee and Nespresso capsules, was roughly flat after posting strong growth a year earlier as more people stayed at home. Overall sales in Europe rose 6.9% while prices rose 4.1%. Growth was mainly driven by Nestlé Professional, where sales topped pre-pandemic levels as restaurants and bars reopened.
Nestlé’s Greater China region was a relative outlier, falling 0.5% in prices as its high-margin infant formula business reported a decline in sales. Overall, volumes in the region rose, supported by coffee, culinary products and an increase in Nestlé Professional sales, despite regional Covid-19-related lockdowns.
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https://www.wsj.com/articles/shoppers-shrug-off-higher-prices-boosting-nestles-sales-11650532663?mod=pls_whats_news_us_business_f Buyers accept higher prices, boosting Nestlé’s sales