Nestlé cautions on margins despite sales boost

Food giant raises organic growth forecasts but worries about inflation

Nestlé said input cost inflation would slightly squeeze margins this year. Photograph: Hollie Adams/Bloomberg

Nestlé said input cost inflation would slightly squeeze margins this year. Photograph: Hollie Adams/Bloomberg

 

Nestlé said input cost inflation would slightly squeeze margins this year even as strong demand for coffee boosted organic sales in the first half, allowing the world’s biggest food group to raise its full-year growth guidance.

Food groups are grappling with surging commodity costs that are hitting margins, and Nestlé, with well-known brands like Nescafe coffee and Purina pet food, said price increases could only be implemented with a time lag.

Its underlying trading operating profit margin is expected to slip to around 17.5 per cent this year from 17.7 per cent in 2020, and then improve again from 2022, Nestlé said in a statement on Thursday.

“[On the margin], we’re taking a bit more of a cautious view to the full year because we see continued inflation in the system,” chief executive Mark Schneider told reporters on a call. He said the company could hedge against some increases – such as coffee prices that spiked this week – but not against higher transportation costs.

Mr Schneider said input cost inflation was expected to reach around 4 per cent this year, and the company would accelerate price increases in the second half. He said Nestlé needed to raise prices by about 2 per cent to offset 4 per cent cost inflation. It raised prices by 1.3 per cent in the first half.

Nestlé raised its organic growth guidance for the year to 5-6 per cent, versus “above 3.6 per cent” previously, after strong demand for coffee and a rebound in the out-of-home business and in China lifted sales by 8.1 per cent in the first half and 8.6 per cent in the second quarter.

Net profit rose slightly to 5.9 billion Swiss francs (€5.47bn). – Reuters