Petcare, confectionery drive Nestle’s better-than-expected performance

Nestlé has said price rises will start to ease in the second half of the year, as the KitKat maker raised its sales outlook delivering better than expected performance in the six months to the end of June.

In interim results announced on Thursday (27), the world’s biggest food company reported a dip in sales volumes in a sign that customers are resisting rising food and drink prices. Nestlé posted a drop in real internal growth — a proxy for sales volumes — of 0.8 per cent in its first half, having raised prices to cope with higher production costs and hived off underperforming brands.

The maker of Smarties and Nescafé raised prices by 9.5 per cent in the first six months of the year, down only slightly on a 9.8 per cent increase in the first three months of the year, which was close to the fastest pace in more than three decades.

Speaking to analysts on Thursday (27), chief executive Mark Schneider said price rises would slow in the second half of the year. “Its safe to say pricing won’t reach the same levels as [the first half], but it’s clear that in the overall macro [inflationary] environment higher prices would still be needed,” he said.

However Schneider added that Nestlé was hesitant about raising prices on the continent, because “we have always been more cautious about the consumer sentiment in Europe”. Consumer goods companies have reported falling volumes and in some cases lost market share, suggesting shoppers are balking at consistent price increases.

Nestlé added that consumer “demand elasticity” had remained “limited” despite the rising cost to customers. The Swiss group said lower volumes were also driven by actions it took last year to get rid of some underperforming products and varieties in its portfolio. It warned in April that the measures could have a “net negative impact” for the first half, and “a slightly positive impact” for the full year 2023.

However, Nestlé said organic sales during the period rose 8.7 per cent, beating analyst consensus of 8.1 per cent. The improvement was led by double-digit growth in its Purina PetCare range, infant nutrition and confectionery, with particularly strong sales of KitKat. As a result, Nestlé expects full-year organic sales growth in a range of 7 to 8 per cent, up from a range of 6 to 8 per cent. Schneider said Nestlé had increased its sales forecasts following a normalisation of post-Covid consumer behaviour, which had stymied growth in some categories.

“For the remainder of the year, we are confident that we will deliver a positive combination of volume and mix, an improvement in gross margin and a significant increase in marketing investments,” he said.