Nestle raises growth outlook, eyes consumer reaction to price hikes

Nestle warned on Thursday that price hikes could eventually weigh on sales volumes for the maker of Cheerios cereals, Kit Kat bars and Nescafe as it raised its full-year sales growth forecast to 7-8 per cent and trimmed its margin guidance.

Cost inflation hurt the world’s biggest food group less than expected in the second quarter and price increases boosted first-half organic sales growth.

Consumer goods businesses are facing soaring costs for raw materials, energy and transportation, and though many consumers so far seem to accept the resulting price increases, delays in implementing them are squeezing companies’ margins.

“So far, the evidence we’ve seen about consumers trading down is very limited to certain categories and geographies,” Chief Executive Mark Schneider told a media call.

“But that doesn’t mean it couldn’t happen down the road, and that’s something that we need to watch in the second half.”

Nestle shares, down almost 8 per cent this year, were 1.4 per cent lower at 0817 GMT, lagging the European food sector index.

Nestle raised its full-year sales growth forecast, just like Rivals Reckitt Benckiser, Unilever and Danone earlier this week, after steep price increases helped all four companies beat second-quarter sales expectations.

Schneider said it was easier to raise prices for household products or cosmetics than for food, but pricing would catch up over time so margin pressure would be temporary.

Nestle, whose products range from pet food to gourmet coffee, said its underlying trading operating profit margin dropped to 16.9 per cent in the first half of 2022 from 17.4 per cent a year earlier. It now targets around 17.0 per cent for the full year, the bottom of an earlier 17.0 per cent-17.5 per cent range.