Summary
- Price hikes necessary to offset raw material inflation
- Company projects organic growth of 6-8% in 2023
- CEO says supply chain pressures reducing
The world’s largest food group Nestle (NESN.S) will hike prices further this year, Chief Executive Mark Schneider said on Thursday, after more expensive ingredients contributed to making its 2022 profit fall short of market forecasts.
Rivals have said they expect a more optimistic pricing outlook for shoppers this year. But Schneider said further hikes were needed to offset the impact of rising commodity prices. That is unpleasant news for consumers, whose spending power has already been battered by inflation at multi-decade highs.
The maker of KitKat chocolate bars and Nescafe instant coffee hiked prices by 8.2% in 2022, but that did not completely offset the impact of increased costs for ingredients on margins.
“Our gross margin is down about 260 basis points – that is massive. That is after all the pricing we have done in 2022,” Schneider told reporters.
Consumer goods producers lifted prices to deal with soaring costs for almost all raw materials after Russia’s invasion of Ukraine aggravated pandemic-related supply chain logjams. But they face a challenge in how much they can raise prices before even wealthy shoppers decide enough is enough.
Unilever (ULVR.L) said last week it would continue to hike prices for its soaps, detergents, and packaged food to offset increasing input costs, but would reduce those hikes in the second half of this year.
Snack and soda maker Pepsico said last week it would stop increasing prices after multiple hikes in 2022 helped it exceed analyst estimates for profit and sales.
‘Mixed Emotions’ After Rare Miss
Barclays analyst Warren Ackerman predicts “almost all” of the lower-than-estimated volumes would be caused by Nestle rethinking the variety of products it produces and supply chain constraints, he said on Thursday.
The question will be how much of the volume weakness from these factors lingers into the first half of 2023, he added.
Schneider said that, in many cases, the impact to volumes did not suggest consumers trading down to less costly private label products.
Buy Bitcoin NowNet profit dropped to 9.3 billion Swiss francs, falling short of expectations for 11.6 billion francs, although the consensus forecast did not comprise the impairment at Nestle’s Aimmune subsidiary last year, analysts said.
“Nestle rarely misses and that was a miss,” said Bernstein analyst Bruno Monteyne.
Shares in Nestle fell 2.8% in mid-afternoon trading. Nestle said it aimed at organic sales growth – which cuts out the impact of currency moves and acquisitions – in a range of 6-8% this year.
During 2022 the company’s posted sales grew 8.4% to 94.4 billion Swiss francs ($102.31 billion).
($1 = 0.9227 Swiss francs)
