Nestle raises full-year growth outlook after strong coffee sales

Price hikes pushed organic sales 6.5% higher in the third quarter

Starbucks-branded products posted 15.5% growth and Nespresso portioned coffee was also up 11%. Photograph: iStock

Starbucks-branded products posted 15.5% growth and Nespresso portioned coffee was also up 11%. Photograph: iStock

 

Nestle raised its sales guidance on Wednesday, saying it now expected full-year organic growth of 6 per cent -7 per cent after strong coffee sales and price hikes pushed organic sales 6.5 per cent higher in the third quarter.

Like its peers, the world’s biggest food group is facing pressure on margins from rising input costs, but it kept its outlook for a stable margin this year as price increases of 2.1 per cent in the third quarter helped mitigate input cost inflation.

“The company knocked it out of the park for the third quarter,” Kepler Cheuvreux analyst Jon Cox said, adding the quarterly pricing component was the strongest since the first half of 2015.

“Most companies with strong brands will be able to pass on prices and I think the market still does not get that,” he said.

Nestle shares, up 8 per cent so far this year, were expected to open 0.8 per cent higher in pre-market trading.

The maker of KitKat chocolate bars and plant-based burger patties has guided for a 4 per cent increase in input costs this year and said last month that cost inflation would likely be even higher in 2022.

Global supply chains are under strain due to factors such as a resurgence of Covid-19 cases in Asia and staff shortages in the United States.

Peer Danone warned on Tuesday of growing inflationary pressures next year, while Procter & Gamble Co said it would raise prices in the United States to counter higher costs.

At Nestle, organic sales - which strip out acquisitions, divestitures and currency swings - rose 7.6 per cent in the first nine months, the group said in a statement, beating a forecast for a 6.6 per cent increase in a company-compiled consensus.

Strong coffee sales were a driver, with Starbucks-branded products posting 15.5 per cent growth and Nespresso portioned coffee also up 11 per cent. Out-of-home consumption of food and drinks - severely hit during the pandemic - recovered further, Nestle said.

The Swiss company had previously raised its full-year guidance to 5 per cent -6 per cent in July. It still expects an underlying trading operating profit margin at about 17.5 per cent this year and a “continued moderate margin improvement” in the mid term.

Anglo-Dutch rival Unilever is due to give a trading update on Thursday. – Reuters