Nestlé joins Dettol-owner Reckitt in tapping into higher prices to boost earnings

Nestlé is confident it can keep raising prices without losing too many customers

Nestlé expects to maintain profits despite rising cost pressures.

Food group Nestlé is confident of defending its profit margins against mounting cost pressures this year, planning more price increases after they helped it beat sales and earnings expectations in 2021.

Consumer goods companies are grappling with surging costs for commodities, energy, transport and labour, prompting rival Unilever last week to warn of a drop in margins as it struggles to lift prices enough to offset the extra expenses.

"It is a safe assumption that our input cost increases for 2022 will be higher than 2021, that is something that we have to reflect in our pricing," Nestlé CEO Mark Schneider said, declining to give a precise inflation forecast in a "super volatile environment".

"There is almost no place in the company that is exempt from inflation now," he said.

Nestlé, which has added more high-value products alongside staples such as Nescafé instant coffee and Maggi bouillon cubes, is confident it can keep raising prices without losing too many customers.

It recently bought a majority stake in protein powder maker Orgain to boost its health science business that grew 13.5% last year. Its Starbucks coffee sales were also up over 17%, showing that buyers of these products are ready to pay more.

Nestlé stepped up price increases throughout the year to 3.1% in the fourth quarter and said it would continue this year while seeking efficiencies in the business.

It expects a broadly stable underlying trading operating profit margin of 17%-17.5% after delays between cost inflation and price hikes saw it dip to 17.4% last year.

Shares in another consumer goods giant – Dettol and Vanish maker Reckitt Benckiser rose after the company forecast that its profit margin would grow this year despite significant commodity cost pressures that have led rivals to warn about slowing growth.

The company expects its full-year, adjusted operating margin to exceed its current 22.9%.

Fourth-quarter revenue grew 3.3% on a like-for-like basis - faster than analysts expected - helped by Reckitt’s hygiene business in North America, where demand for its Lysol disinfectants and sanitisers remained strong.

Reckitt chief executive Laxman Narasimhan is unwinding the missteps of his predecessor Rakesh Kapoor by selling off parts of the portfolio such as its infant formula business in China.

Mr Narasimhan also warned in the statement of an “unprecedented inflationary environment,” joining a growing list of consumer goods companies voicing concern over input prices as the worst inflation in a decade eats into profits.

“The levers we have are productivity, we need to keep pushing that very hard,” Reckitt chief financial officer Jeff Carr said.

Mr Carr said Reckitt faced commodity cost inflation of about 11% in 2021, half of which the company offset by cutting overhead costs. Reckitt expects an increase in supply chain costs this year due to soaring prices of tinplate, crude oil and transport, Mr Carr said.

- Reuters and Bloomberg