KitKat chocolate bars manufactured by Nestle SA arranged in London, United Kingdom on Monday, July 26, 2021. Nestle publishes its half-year results on July 29th. Photographer: Hollie Adams/Bloomberg via Getty Images
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Nestle reported lower-than-expected nine-month sales growth on Thursday as higher product prices spooked buyers and shares fell about 2% in morning trading, but said it expects volumes to turn positive again by year-end.
The packaged goods industry has been hitting customers with higher prices for over two years, citing higher input costs that began with the COVID-19 pandemic and were exacerbated by Russia’s invasion of Ukraine. Everything from sunflower oil to freight has become more expensive, straining global supply chains.
Nestle’s 8.4% price increase was below the average analyst estimate of 8.6%. Real internal growth (RIG) – or a measure of sales volume – fell 0.6%, in line with expectations. Nestle said real internal growth improved to a decline of 0.3% in the third quarter.
The company’s CEO, Mark Schneider, said he was “confident that real internal growth, the sum of volume and mix, will turn positive in the second half of the year and will once again become the key driver of future growth.”
“Pricing will be more targeted by brand and country,” Schneider said.
P&G, which makes Tide detergent and Gillette razors, reported weak sales volumes on Wednesday but said they would stabilize and pick up later in the year.
“The (Nestle) results were a bit disappointing. The market was expecting more volume,” said Aviva portfolio manager Richard Saldanha. “The ultimate trigger for improving the equity metrics will be for the volume number to turn positive.”
“Prices have come down, so we should see signs of volume improvement soon…There are clearly some categories that remain quite challenging, such as water and health sciences.”
Investors and analysts have expressed concerns that companies are pushing price increases too far and recommended a greater focus on marketing and innovation amid the cost of living crisis in which retailers’ private label brands are stealing market share.
Organic sales, which exclude the impact of currency fluctuations and acquisitions, rose 7.8% in the nine months to September, the maker of Maggi stock cubes and Nescafe coffee said.
Analysts on average had expected organic sales growth of 8.1%.
Executives have indicated in recent quarters that costs are rising more slowly, but also warned that shoppers would continue to pay more for products like soap, toilet paper and coffee as companies still haven’t recouped years of damage from higher spending.
Nestle confirmed its full-year forecast for organic sales growth of between 7% and 8% and an underlying operating profit margin of between 17.0% and 17.5%.
A Nestle spokesman said the company had “not seen any impact from (weight-loss drugs) on our sales,” citing the potential threat that Novo Nordisk’s blockbuster weight-loss drug Wegovy poses to the packaged food industry.
The drug’s popularity has raised concerns in the consumer and retail industries about whether grocery sales will be affected. Nestle shares fell this month after Walmart, the world’s largest retailer, said there was a slight decline in food consumption due to the use of appetite suppressants such as Wegovy.