Nestle in Sweet Spot as Coffee Booms at Home, Restaurants Reopen

Nestle SA sales grew at more than twice the rate analysts expected as the Swiss food giant sold more Nespresso capsules to people working from home and restaurants in Asia stocked up as they started reopening.

The Hot Pockets maker is benefiting from the best of both worlds: people stuck at home buying coffee and convenience meals, and other markets reopening restaurants that need to replenish kitchen supplies.

Nestle’s first-quarter report is one of several signals Thursday from companies including Hermes and Pernod Ricard SA that a consumer rebound is in full swing. It also shows how the food industry is embracing e-commerce, as online sales surged 40% and now make up a sixth of Nestle’s sales.

Nespresso’s 17% sales growth turbocharged the results, which were strong worldwide. A surge in China made Asia its best-performing region. Shoppers in the U.S. loaded up on Stouffer’s and Lean Cuisine convenience meals, while Nescafe and Starbucks coffee products were strong in Europe.

The 7.7% adjusted sales increase in the first quarter is the fastest in a decade, according to Sanford C. Bernstein. That sets Mark Schneider up to reach his long-term goal of annual mid-single digit growth four years after he became chief executive officer. The stock rose as much as 3.7%.

The decline in out-of-home sales to places like hotels, restaurants and canteens moderated to 12% from 26% in the second half of last year. While that business returned to growth in China and Japan, Nestle expects a full recovery to pre-pandemic levels at the earliest in 2022. In the meantime, the company is coming up with new ways to revive the business, such as contactless coffee machines and supporting takeaway services.

Out-of-home revenue accounted for about 10% of total sales before the pandemic.

Nestle in Sweet Spot as Coffee Booms at Home, Restaurants Reopen

Analysts will probably increase their organic-sales estimates to the higher end of a 4% to 5% range, according to Cedric Besnard, an analyst at Citi.

“The debate this morning will be around why guidance isn’t being upgraded, given that solid mid-single digit growth for the year now looks well within reach,” said Bruno Monteyne, an analyst at Bernstein.

What Bloomberg Intelligence Says:

Nestle’s concentration on e-commerce solutions during the pandemic -- despite cycling last year’s pantry loading into 1Q -- has helped boost organic growth by almost 5% (to 39.6% and 14.5% of sales) and could drive analyst upgrades when food-service custom completely reopens. That’s as long as Nestle can maintain elevated retail sales as a result of its health-driven innovation program.

-- Duncan Fox, BI packaged-goods analyst

In February, Schneider said sales growth may cross the threshold of 4% this year and should at least match last year’s 3.6% pace.

“It certainly sets a high bar for those in the sector who have yet to report,” said RBC analyst James Edwardes Jones. “While we don’t expect growth of this magnitude to be sustainable it is nonetheless very impressive in our view.”

©2021 Bloomberg L.P.

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