Nestle sales growth sputters on US slump Return of customers helps Unilever beat sales forecast
LONDON: Nestle sales growth sput- tered in the first quarter as the maker of Nespresso coffee was hit by cooler demand in North America and supply constraints at its vitamins unit.
Sales rose 1.4% in the period on an organic basis, the Swiss company said yesterday, about half the estimate of analysts. Its real internal growth rate — a key measure of volumes — fell by a greater-than-expected 2%, although the company predicted a rebound in the second quarter.
Consumer goods groups like Nestle and Unilever Plc have been trying to win back market share with brand name products after soaring inflation drove overstretched consumers to cheaper store brands.
Unilever’s results yesterday, like Danone’s and Reckitt Benckiser Group Plc’s earlier in the week, suggest that shoppers are starting to move back to big brands. Nestle’s figures, however, indicate the Swiss giant may be an outlier from this trend.
Nestle shares fell as much as 4.8% in early Swiss trading, the biggest decline in two months.
Soft consumer demand and fierce price competition in the US hit frozen food, including pizza, and organic sales contracted by 2.5% in North America overall, Nestle said. Health science slumped as vitamins, minerals and supplements posted negative growth on previously flagged supply snags.
Nestle expects real internal growth to rebound during the remainder of 2024, with a turning point at the vitamins business in the second quarter, Chief Executive Officer Mark Schneider said yesterday.
Nestle confirmed its outlook for organic sales growth of around 4% and a moderate increase in the underlying trading operating profit margin this year.
While its reiteration of guidance indicates Nestle sees a strong recovery, investors are likely to remain skeptical until a visible improvement takes hold, according to Citigroup analyst Cedric Besnard.
The company is also battling negative news on other fronts. Nestle recently had to defend the safety and treatment of its mineral water after standards were called into question by government agencies and NGOs. Separately, its addition of sugar into infant food in emerging markets has also come under scrutiny.
“Measures are needed to reinvigorate the organisation” and “restore flawless execution,” Jean-Philippe Bertschy, an analyst at Vontobel, wrote in a note.
GDANSK: Unilever beat first-quarter sales forecasts yesterday as the maker of Dove soaps and Hellmann’s mayonnaise won back shoppers who had traded down to cheaper products during the recent surge in global inflation.
Shares in the consumer goods giant rose more than 4% after it reported a 4.4% rise in underlying sales growth, topping analysts’ average forecast of 3% in a company poll.
Sales volumes climbed 2.2%, the second quarter of growth after several declines. Prices were also up 2.2%.
Consumer goods companies are fighting to recover volumes lost after months of price increases made to pass higher costs onto customers. Prices initially rose due to the pandemic, and then as energy costs soared after Russia’s invasion of Ukraine.
“We have increasing confidence in our ability to deliver sustained volume growth as we accelerate gross margin expansion,” CEO Hein Schumacher said in a statement.
Unilever also kept its full-year guidance for underlying sales growth within its multi-year range of 3% to 5%, but added it expected volumes to increasingly drive this growth. It had previously guided for “more balance between volume and price”.
The company’s price hikes gradually slowed in 2023, and that trend continued in the first quarter of this year.
After years of under-performance, Unilever unveiled a “Growth Action Plan” (GAP) in October. This involves investing more in its top 30 brands that represent over 70% of sales, supporting innovation, and working towards a better operating discipline.
“This is a useful print for company’s ‘GAP’ strategy credibility,” Jefferies analyst David Hayes said of the firstquarter results, as the company either beat or met organic sales growth and volume expectations in all divisions and regions.