Nestle

Nestle credited price increases for boosting sales numbers

Nestle’s CEO credited sales growth in Q1 to “increased pricing.” “Mark Schnieder, CEO: Thank you, Luca. And a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. We are pleased to report another strong start to the year. We reached 7.6% organic sales growth in Q1 with increased pricing and resilient real internal growth. Building on the strong starts in 2020 and 2021, this brings our three year compound annual organic sales growth rate to 6.5% for Q1. It is literally the story of growth on growth. In a year that saw a significant and increasing input cost inflation, we stepped up pricing in a responsible manner. At the same time, we launched meaningful innovations and saw strong growth in our affordable offerings, which ensures that consumers retain access to our products.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle’s CEO: “Organic growth in developed markets was 6.7% based on increased pricing and resilient RIG.”“Mark Schnieder, CEO: Turning to the distribution of growth between developed and emerging markets. Organic growth in developed markets was 6.7% based on increased pricing and resilient RIG. Growth in emerging markets reached 8.8% with balanced contribution from RIG and pricing. Growth was supported by strong momentum for affordable offerings, particularly in AOA. Let’s now consider the breakdown of sales by channel. Organic growth for retail sales remained strong at 5.9% with a high base of comparison in 2021. Growth remained well above pre-COVID levels.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle’s CEO told analysts that prices increased over 5% the past quarter and the company expected “further price increases over the course of the year,” blaming the war in Ukraine for new cost inflation. “Mark Schnieder, CEO: Within retail, e-commerce sales grew by 5%, building on a very strong growth of 39.6% in the first quarter of 2021. Organic growth in out-of-home channels reached 35.6% with sales now exceeding 2019 levels. Pricing stepped up to 5.2% in Q1. We expect further price increases over the course of the year to reflect significant cost inflation. Increases will continue to be implemented in a progressive and responsible manner. The impact from cost inflation is expected to be significantly higher in 2022 versus 2021 compared to when we talked to you in February, we now expect an even greater inflationary impact as a result of the war in Ukraine. So far, we have not seen any material evidence of negative RIG elasticity linked to price increases.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle executive: “we’re defending our margins here. We’re not expanding our margins, and we’re doing the pricing as responsibly as possible.” “And then obviously, as we discussed in the full year conference call, different markets, different environments have different timetables for when you can review pricing. I think by now, everyone has understood that there is such a significant surge underway starting from last year that clearly, price stability is simply not in the cards. I mean, we’re literally, as you know, when you compare full year margins, we’re defending our margins here. We’re not expanding our margins, and we’re doing the pricing as responsibly as possible. But clearly, the situation has become worse. And that’s what we were trying to signal because we had expressed a larger degree of conservatism when it comes to the UTOP margin as part of the full year guidance. So again, all we were trying to do is sort of give you the latest impression on that.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle saying it wasn’t seeing any consumer reaction “as we raise prices to levels that we have not seen for at least 15 years.” “On the consumer behavior, as we indicated, we have not seen any evidence of down trading today. The evidence of it is the fact that we see, for example, our premium products growing faster than the average of Nestle. And we have not seen any evidence either of negative elasticity on volume. We may — we do expect that there will be some probably as we progress further in the year and as we raise prices. This is — I’m not saying that it came as a surprise. But I mean, as we raise prices to levels that we have not seen for at least 15 years, we could have expected probably more. There might be one reason to be seen, but is the fact that probably during the COVID crisis, probably a lot of consumers did increase their savings level and continue to consume at a relatively high level. I mean we see that across FMCG. By the way, if you did listen, I’m sure to many of our peers as well, and you can see that the level of consumption is relatively solid across segments and industries as well. (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle said they were taking pricing “with the best of our interest of shareholders in mind” and that there was a “generally good understanding in the public that obviously something has to give.” “And look, on the pricing, obviously, we’re trying to be transparent and helpful, but we don’t want to handicap how next pricing moves are going to work out. And obviously, we’re trying to do this with the best of our interest of shareholders in mind. And so sorry that we can’t be more transparent on that. Suffice it to say, people do see significant commodities and energy, as I mentioned before, going up. And so I think there’s generally good understanding in the public that obviously something has to give, and we can’t keep things constant in light of the significant cost pressures that are affecting everyone, and there’s no exceptions.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

Nestle admitted it was increasing prices in the US higher than elsewhere

Nestle said it was taking “higher pricing in the U.S. market than comparatively in Europe or elsewhere.”“Tom, let me take a crack at the pricing side and then hand over to Francois. Look, I can’t go into too much detail on the categories. But I think the picture you’ve seen and that is higher pricing in the U.S. market than comparatively in Europe or elsewhere. I think that’s not unusual. And I think it’s very consistent with some of the peers reporting I’ve seen. And I think a lot has to do with the fact that in addition to commodities, you’ve also seen significant labor cost inflation, plus the distribution cost inflation. There’s a real distribution shortage there and crisis, and that has an impact on trucking costs. And of course, it’s something that we need to reflect. And so I think we are just, as I said, we’re trying to be as responsible in pricing.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

A Nestle executive said “in the U.S. as well, it’s usually easier to implement pricing because we have less constraints than in Europe, timing-wise.”“In a certain of market, and it has happened in the U.S. , and that explains part as well as the high level of pricing that we had. Given that we were facing supply chain constraints, we did less promotional activities. As you can understand, if we were very tight to supply the market, there was not necessary points to maintain heavy promotional activities for some of our categories or some of our SKUs and products. So this is the reason why you — part of the reason why you see a lot of pricing in the U.S. As you know, in the U.S. as well, it’s usually easier to implement pricing because we have less constraints than in Europe, timing-wise. So which means that we can usually react faster than in some other markets and more specifically in Europe. Next question is from Pinar Ergun at Morgan Stanley. Please go ahead, Pinar.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

After saying it would suspend some sales in Russia in late March, Nestle admitted it had received a boost in Russia from price increases and panic buying

March 23 2022: Nestle said it was suspending sales of a wife range of brands in Russia and would donate profits from Russia to Ukrainian relief. “Nestle is to halt the sale of a wide range of brands in Russia, including KitKat chocolate bars and Nesquik,amid Ukrainian President Volodymyr Zelenskiy’s criticism of the world’s biggest food company for its continued presence in the country. The products affected, also including pet food and coffee, make up the “vast majority of volume and sales” in Russia, which totalled 1.7 billion Swiss francs ($1.82 billion) in 2021, a Nestle spokesperson said. The Swiss company had already halted non-essential imports and exports to Russia and had also stopped all advertising and capital investment in the country and said it would donate profits from Russia to Ukrainian relief efforts.” (Reuters, 3/23/2022)

April 21 2022: Nestle defended its ongoing business in Russia: “It’s very hard, as you can imagine, for a food company to tell them to stop supplying food, just like it’s hard for a pharma company to stop making medicines or for a hospital to stop accepting patients.” “When it comes to Russia overall, I hope that no one has questioned our motives for the path that we have chosen regarding our presence there. This is not about gaining commercial advantage. For us, it is about universal human right that we don’t want to let go lightly. And if that didn’t come across clearly enough, I would want to offer my regrets. It’s very hard, as you can imagine, for a food company to tell them to stop supplying food, just like it’s hard for a pharma company to stop making medicines or for a hospital to stop accepting patients. And for us, a presence on the ground is never just a business opportunity. It also comes with what I call extensive rainy day responsibilities for the communities we serve. We demonstrated that around the world when it comes to the COVID pandemic. And I think we’re demonstrating it today, in particular, on the ground in the Ukraine, where we’re one of the few food companies still operating and supplying the population. When it comes to Russia, consistent with this very limited approach and the trade restrictions and everything else that applies, I think we’ve chosen the most conservative option for computing our Q1 growth, and that is excluding it. And I think that’s very consistent with the announcements that we made on March 23 regarding our plans for Russia.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)

 April 21 2022: Nestle said that sales growth in Russia was actually above average thanks to price increases and “ pantry loading in the context of the crisis locally.” “So if we had kept Russia into our organic growth, our organic growth at group level would have been higher, which means that Russia grew at a higher level than the average of the group. This is essentially linked to the fact that we did quite a lot of pricing in Q1 as a consequence of the significant depreciation of the ruble because it went down by almost 50% at a given time. In addition to that, we have seen that there was a lot of pantry loading in the context of the crisis locally. So when you add up the pricing and pantry loading, this is the reason why we had this benefit in terms of sales in Russia in Q1.” (Nestle SA Q1 2022 Earnings Call, 4/21/2022)