Nestle Starts Year With Strongest Price Increases in Decade
Nestle Starts Year With Strongest Price Increases in Decade
(Bloomberg) -- Nestle SA is hitting consumers with its steepest increase in first-quarter pricing in more than a decade, lifting the cost for everything from Nespresso capsules to Purina dog chow to blunt the impact of surging food inflation on its profitability.
Pricing rose 5.2% in the first quarter, the most for that period since at least 2012, the maker of DiGiorno frozen pizzas said Thursday. Even Nespresso, a brand that has kept prices fairly stable for years, is getting more expensive, increasing 3.1%.
Nestle isn’t alone. Procter & Gamble Co and Danone SA also said this week they started the year with price increases of about 5%. Shoppers face a higher bill for products like microwaveable Hot Pockets sandwiches and Perrier bottled water even as they have higher gasoline and electricity expenses.
Food and beverage companies have been raising prices at a time when consumers return to offices and wine and dine outside their homes more often. Heineken NV announced an 18% boost this week from a combination of higher prices and a better sales mix as bar-goers bought more premium beers.
Nestle shares gained as much as 1.9%, having gained 15% in the past year.
Every one of Nestle’s product categories saw price hikes in the three months through March. The biggest price increases were in pet care, bottled water and prepared meals. Greater China was the only region spared as the company focused on gaining market share there.
While the food sector is generally more resilient than industrial companies and carmakers because food and drinks are basic necessities, there’s a risk that consumers will eventually opt for cheaper alternatives. Nespresso’s shipments barely grew in the first quarter, though that’s partially because the rebound was so strong in the year-earlier period.
The war in Ukraine has exacerbated food inflation because the country is a major supplier of wheat and sunflower oil. Meanwhile inflation in prices for coffee, plastic and shipping are cutting into profitability at the maker of KitKat chocolate and San Pellegrino water.
“Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year,” Chief Executive Officer Mark Schneider said in the statement.
Shipments of milk products, prepared meals and cooking aids are already declining, showing that Nestle has limits to its pricing power.
Schneider had faced criticism for continuing to do business in Russia, with Ukrainian politicians even calling him out by name and demanding a full exit. Nestle eventually suspended the vast majority of its production in the country, but Schneider maintains that access to food is a basic right. Nestle now focuses on selling essential products like infant formula and medical nutrition there.
The CEO stuck to his forecast for revenue growth to decelerate to about 5% in 2022. Schneider said in February the company should achieve its previous long-term guidance in coming years, which is for annual revenue increases of 5% to 6%.
The maker of Purina pet food repeated that profitability may decline for a second year in 2022, with its adjusted operating profit margin expected to be 17% to 17.5% this year. The margin was 17.4% in 2021.
“We are getting used to companies beating consensus sales growth expectations this quarter -- L’Oreal, Danone and Heineken have all done it -- but in our view Nestle is the most impressive yet,” James Edwardes Jones, an analyst at RBC, wrote. He said that the company’s shipment growth is admirable in the context of such strong pricing.
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