Nestle cuts sales guidance as shoppers limit spending

Nestle SA lowered its sales outlook for the year as consumers balk at price increases on branded food, water and pet-care products that had driven revenue growth during a post-pandemic bout of inflation.

Nestle now expects sales to grow at least 3 per cent, lower than the roughly 4 per cent it had previously targeted. The world’s biggest food company has struggled to win back market share after shoppers switched to cheaper alternatives.

Shares are down about 14 per cent for the past 12 months.

Revenue rose 2.1 per cent in the first half, compared with the 2.5 per cent expected by analysts, the Swiss maker of Nespresso and Purina said.

Almost all of that growth came from higher pricing, which sharply slowed in the second quarter. Nestle’s coffee business, boosted by the rising price of the commodity, was the highest contributor to organic growth, increasing in the mid-single digits.

A cost-of-living crisis has taken its toll on consumers who’ve traded down to supermarket brands, and consumer giants like Nestle have struggled to coax them back.

Faced with lower growth, Nestle could face pressure to cut costs more aggressively and consider whether acquisitions or disposals are needed to drive profitability.

After a period of high input cost inflation, Nestle has been building back its gross margin: It rose to 47 per cent in the first half from 46 per cent two years ago, but remained below 2021 levels.

“We are still in repairing mode,” Chief executive officer Mark Schneider said on a call with journalists. The gross margin will come under pressure in the second half because of higher coffee and cocoa prices, he added.

Schneider has turned to innovation - including a range devised for people taking GLP-1 weight-loss drugs - to convince investors that the company has room left to grow.

Nestle will launch new products addressing consumer trends this year, he said Thursday. The GLP-1 range will hit the shelves at the end of the third quarter.

Bloomberg.