Confectionery and pet food boost Nestle as prices rise

Nestle said sales rose 5.6% to €24bn in the three months to the end of March, beating analysts' estimates. 

Nestle reported slightly better-than-expected first-quarter sales as the world's biggest packaged food company increased prices to offset weak sales volumes.

The Swiss company, which makes KitKat chocolate bars, Nescafe coffee,  and Maggi stock cubes, said sales rose 5.6% to €24bn in the three months to the end of March, beating analysts' estimates. 

The maker of Purina pet food increased its prices by 9.8% in the quarter but sales volumes — which the company calls real internal growth — fell 0.5%.

Confectionery and pet food sales were bright spots, with volumes rising in both categories.

Nestle shares have risen 6.5% since the start of the year. Analysts and investors, including broker Bernstein, called the results "a strong start to the year".

"A very resilient set of numbers that underlines the strong results we've seen so far from staples in general, for instance, P&G and Coca Cola last week," said Richard Saldanha, a fund manager at Nestle investor Aviva.

"The concern going into this year was whether higher prices would have a major negative impact on volumes — but that doesn't seem to have been the case so far," he said.

Consumer goods companies from Unilever to P&G have raised prices sharply over the last two years to battle rising commodities and supply chain costs.

Inflation

Margins have been squeezed by the impact of the pandemic and Russia's invasion of Ukraine, which sent energy prices to record highs.

Some shoppers — particularly those in Europe — have balked at higher prices, prompting lower sales volumes across the industry as people buy less or trade down to cheaper brands.

Yet many consumer companies are still seeing resilient demand, especially from US shoppers.

Rival Unilever, which posts results later this week, said earlier this year that the industry was past "peak inflation, but not yet past peak pricing". 

Food price inflation will start easing in the second half of this year, French European Central Bank policymaker Francois Villeroy de Galhau has said, adding that a decrease in crop prices will help. 

However, sugar producer Associated British Foods has warned that sugar could be an exception to the easing of prices in the second half. It's unclear whether companies will prioritise volume sales growth by passing on declining costs to consumers or look to protect margins. 

Reuters