Nestle forecasts revenue slowdown as price hikes deter shoppers

A bird's nest logo sits on display at the Nestle SA headquarters in Vevey, Switzerland. Photographer: Stefan Wermuth/Bloomberg

Nestle reported full-year organic sales growth slightly below expectations on Thursday as the world's biggest packaged food company continued to hike prices, prompting some shoppers to turn to competing brands.

Revenue should increase about 4% in 2024 on an organic basis after gaining 7.2% last year, Nestle said Thursday. The company also expects a 6% to 10% gain in underlying earnings per share.

Chief Executive Officer Mark Schneider said that in 2024, Nestle is prioritizing growth led by volume and mix — shoppers switching to pricier formats — boosted with increased marketing and innovation.

The company’s underlying operating margin rose 40 basis points in constant currency to 17.3% in 2023, and it expects a further moderate improvement this year.

Nestle returned to growth through higher volumes and consumers choosing more expensive formats. Its real internal rate of growth — a proxy for volume — was positive at 0.4% in the final quarter of 2023, the first increase in a year and a half.

Companies like Nestle are looking to claw back market share after the highest inflation in decades pushed shoppers to cheaper white-label products.

The packaged goods industry has for over two years hit shoppers with higher prices, citing higher input costs that started with the pandemic and were exacerbated by Russia's invasion of Ukraine. Everything from sunflower oil to freight has become more expensive, taking a toll on global supply chains. This quarter, however, companies have said 2024 prices will rise at a much slower rate.

Investors and analysts have raised concerns that companies are pushing price rises too far and recommended that they focus more on marketing and innovation, amid a cost of living crisis that is seeing retailers' private label brands stealing market share.

"Nestlé finishes the year on a disappointing note," Bernstein analyst Bruno Monteyne said. "Guidance for 2024 organic growth of 4.0% is below current consensus of 4.9% and guidance for a moderate margin increase may put pressure on the current (margin) consensus of 17.7%."

However, Nestle's net profit rose sharply by about 20% to 11.2bn Swiss francs (€11.8bn).

Reuters and Bloomberg.