Nestle’s Ability to Hike Prices in Focus for Full-Year Results

By Reuters
February 15, 2022 Updated: February 15, 2022

ZURICH—Food group Nestle is expected to post organic sales growth of 7.1 percent for 2021 on Thursday, almost twice as high as the year before thanks to strong demand for coffee and pet food, but high input costs will start taking a toll on profitability.

Markets will focus on the guidance for this year, especially on the KitKat and Nescafe maker’s ability to raise prices without endangering volume growth and market shares. The outlook for coffee, the petcare business, and plant-based food that benefited during the pandemic will be scrutinized.

Any indication the company could further reduce its stake in cosmetics group L’Oreal, maybe to finance a large acquisition, would also make headlines.

Organic sales, which strip out currency swings and acquisitions, are expected to rise by 7.1 percent in the full year, including a 5.2 percent rise in volumes and a 1.8 percent increase in prices, according to a company-compiled consensus.

The forecast implies a slowdown in the final quarter from the 7.6 percent growth rate seen in the first nine months.

Under pressure from soaring costs for commodities, energy, transport, and labor, Nestle’s trading operating profit margin is expected to decline slightly to 16.7 percent, from 16.9 percent in 2020.

Peer Unilever last week warned of a hit to profitability as it struggles to lift prices enough to offset higher costs.

“Unilever’s warning on its margin clearly rattled the market,” Kepler Cheuvreux analyst Jon Cox said.

“However, I tend to think Nestle is in more premium categories and it should be able to more or less offset inflationary pressures through pricing in 2022.”

Jefferies analyst Martin Deboo downgraded Nestle to “underperform” last month, pointing to tough comparables in coffee and petcare and margin headwinds this year.

Nestle’s shares, down 8 percent so far this year, are trading at over 24 times forward earnings, according to Refinitiv data, at a significant premium to Danone and Unilever.

In December, Nestle cut its stake in L’Oreal to 20.1 percent and announced a new 20 billion Swiss franc ($21.65 billion) share buyback program. It also recently acquired a majority stake in protein powder maker Orgain.

($1 = 0.9238 Swiss francs)

By Silke Koltrowitz