Nestle Gains as Starbucks Coffee Capsules Help Sales Accelerate
Nestle Gains as Starbucks Coffee Capsules Help Sales Accelerate
(Bloomberg) -- Nestle SA shares gained to a record after a new line of Starbucks coffee products helped spur the food company’s fastest quarterly revenue growth in more than three years.
Since February, the Swiss company has been selling Starbucks-branded capsules for Nespresso and Dolce Gusto machines, along with roast and ground. That’s boosting growth as the company forecast it may reach its 2020 margin target one year early. The stock rose as much as 2.9%.
Chief Executive Officer Mark Schneider’s revamp has helped Nestle’s share price gain 29% this year, surging past rivals and boosting its market value beyond 300 billion francs ($302 billion). As Nestle sheds more than $10 billion of underperforming assets and takes a strict line on costs this year, profitability is reaching levels unseen in more than a decade.
“We’re much nimbler now,” Schneider said on a call with analysts, giving the example of how Nestle introduced Starbucks products six months after acquiring the licenses. The company is preparing to enter 20 more markets from October and expand the line next year after recently adding creamers.
“This is what any start-up would do,” he said. “This is where we had to up our game, and we did so substantially.”
The Swiss company expects 2019 sales will climb about 3.5% on an organic basis and that its margin will reach at least 17.5% as it attempts to catch up with rival Unilever.
“This sort of margin growth is not what many expect to see from Nestle,” wrote Sanford C. Bernstein analyst Andrew Wood, adding that profitability in the first half was “the biggest surprise (almost shock).”
Purina helped drive growth in the U.S., where Nestle’s once-struggling frozen-food brands Hot Pockets and Stouffer’s showed growth. This quarter, the company is starting a switch in delivery systems for frozen pizza and ice cream in that market. The change eliminates about 4,000 jobs, cutting costs further.
Nestle also said the review of its Herta processed-meat unit is on track for completion later this year. Sales of vegetarian food products meanwhile rose more than 10% in western Europe in the first half as Nestle expands its plant-based Garden Gourmet Incredible Burger.
“We have the ambition and the perseverance to be a major player in this area,” Schneider said. “We see all the elements of a significant long-term trend in the market.”
On the negative side, Asian sales growth missed analysts’ estimates. European revenue suffered from deflation. Bottled water was weak as higher prices resulted in a drop in volume.
China’s food and beverage market is slowing down, Chief Financial Officer Francois-Xavier Roger told reporters, citing Nielsen data.
“We see it in our business as well,” he said. “We’re quite cautious where China is concerned.”
Still, Nestle’s premium offerings in ice cream and infant formula are performing better than its mainstream products, he said.
CEO Schneider told reporters that Nestle is approaching the outlook with the necessary amount of caution. He pointed to tough comparisons in the fourth quarter and higher commodity costs the company faces in the second half.
“We want to be sure that this is a guidance people can rely on,” he said.
To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier
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