By Richa Naidu
LONDON (Reuters) – Nestle reported slightly better-than-expected first-quarter sales on Tuesday, 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 23.5 billion Swiss francs ($26.48 billion) in the quarter ended March 31, beating the average estimate of 23.27 billion francs in a company-provided analyst consensus.
The maker of Purina pet food increased its prices by 9.8% during the quarter but sales volumes – which the company calls real internal growth – fell 0.5%.
Confectionary and pet food sales were bright spots, with volumes rising in both categories.
Nestle shares were up 1.5% at a one-year high in morning trade. Analysts and investors, including 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, said.
“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.”
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.
Margins have been squeezed by the impact of the COVID-19 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 U.S. 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 ECB policymaker Francois Villeroy de Galhau said on Tuesday, saying this is when a decrease in crop prices will bear fruit.
However, sugar producer Associated British Foods warned on Tuesday 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. Several investors have said consumer goods companies should ease price increases as supply chain costs decline, mindful of protecting market share.
P&G, which makes Tide laundry detergent, Pampers diapers and Gillette razors, last week reported a 10% increase in average prices across its categories during the quarter, and a 3% decline in volumes.
($1 = 0.8873 Swiss francs)
GRAPHICS: Nestle vs Europe’s consumer staples https://fingfx.thomsonreuters.com/gfx/mkt/gdvzqbdmqpw/nestle.PNG
(Reporting by Richa Naidu; editing by Rashmi Aich and Jason Neely)