July 25 – Nestle (NESN.S), the world’s largest packaged food company, reduced its sales growth outlook on Thursday, citing a need to slow down price hikes sooner than anticipated due to increasingly cost-conscious consumers. This news led to a 4.3% drop in its shares during early trading.
Thank you for reading this post, don't forget to subscribe!Nestle now predicts full-year organic sales growth of at least 3%, down from the previous forecast of about 4%. First-half sales rose by 2.1%, slightly below the average analyst estimate of 2.5% growth, according to a company-provided consensus.
“There is value-seeking behavior among consumers. There is pressure, especially at the low-income range,” CEO Mark Schneider said in a media call, identifying North America, Europe, and China as key regions where this trend is prevalent.
The Swiss company raised its prices by 2%, less than the 3% expected by analysts, marking a continued slowdown in price increases. This moderation follows years of significant price hikes aimed at preserving profits and offsetting higher materials costs.
Jefferies analyst David Hayes noted that the pricing shortfall might cause investor concerns about 2025 margins and raises questions about the “brand strength” of Nestle and the broader sector.
Despite the pricing challenges, Nestle managed to increase its sales volumes in the first half, with real internal growth (RIG) up 0.1%, compared to the consensus estimate of a 0.5% decline.
“Across the spectrum of Nestle’s categories, in terms of quality of category, pricing looks bad,” Bernstein analyst Bruno Monteyne said. He pointed out that the weakest price hikes were in coffee and pet food, typically Nestle’s strongest sellers, while commoditized categories like milk products and prepared dishes saw price declines in the second quarter.
Nestle’s underlying trading operating profit was 7.8 billion Swiss francs ($8.8 billion), aligning with the company-provided consensus.
