Nestle, Unilever push past cost hikes
Improved pricing power an early sign of recovery in European food market
ZURICH— Nestle SA and Unilever reported sales that beat estimates as the European food giants pushed through cost increases to combat slowing purchases by consumers opting for quality over quantity.
KitKat maker Nestle said organic revenue rose 2.3 per cent in the first quarter, compared with the 2-percent median estimate. Unilever’s sales growth of 2.9 per cent exceeded analyst predictions of 1.9 per cent as the Hellmann’s mayonnaise provider issued its first results announcement since rebuffing a takeover approach from Kraft Heinz Co.
Improved pricing power at both companies provided an early sign of recovery for the food and beverage market after years of deflationary pressure in Europe, slowing sales in China and economic crises in Brazil and Russia. Higher commodity costs, inflation in Brazil and the fall in the pound since the U.K.’s vote to leave the European Union are contributing to the upward pressure.
“Pricing was better than expected,” Jon Cox, an analyst at Kepler Cheuvreux, said in an interview on Bloomberg TV. “Everybody has to increase prices, and generally that’ll be sticky.”
Nestle and Unilever are joining Burberry Group Plc and Ralph Lauren Corp., which are trying to wean themselves off discounting, especially in the U.S. Alcoholic beverage companies such as Diageo Plc are also trying to ride a trend of “premiumization” as consumers shift to fewer but more expensive purchases.
Food companies are under pressure to lift costs in order to boost profit margins as potential predators like Kraft Heinz look for consolidation opportunities. The U.S. company is backed by private equity firm 3G Capital Inc., known for its pursuit of aggressive profit targets.
The challenge facing the industry is that some cost increases are provoking consumers to reduce purchases: Nestle said higher pricing weighed on shipments in Europe and also at its baby-food unit.
Nestle’s quarterly revenue growth was the slowest this century, according to Andrew Wood, an analyst at Sanford C. Bernstein. A later Easter in 2017 pushed chocolate orders into the second quarter from the first this year.