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Nestle - price hikes push Q1 sales ahead of expectations

Nestlé has reported first-quarter sales of CHF 23.5bn, reflecting organic growth of 9.3%.

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Nestlé has reported first-quarter sales of CHF 23.5bn, reflecting organic growth of 9.3%. Price hikes of 9.8% drove growth as volumes were slightly lower, down 0.5%. Pricing efforts are helping offset ongoing cost pressures.

There was broad-based growth across geographies and categories, with Purina PetCare as the most significant contributor. E-commerce sales grew by 13.6%, reaching 16.2% of total Group sales.

Plans are underway to establish a joint venture for Nestlé's frozen pizza business in Europe. The deal should close in the second half of 2023, subject to the required approvals.

The Group remains on track to deliver full-year organic sales growth of 6-8%, underlying operating margin of 17.0-17.5%, and underlying earnings per share growth of 6-10%.

The shares were up 1.6% in early trading.

View the latest Nestlé share price and how to deal

Our view

Nestlé's showing just how important it is to have a strong suite of brands, which have allowed the consumer giant to push through some pretty hefty price hikes with little impact on volumes. From Purina PetCare to KitKat, Nestlé's host of strong brands have kept their appeal despite rising prices and a consumer coming under ever-increasing pressure to cut back spending.

Underlying performance has been very impressive. A global footprint and varied product base mean the Group's been able to move with the market over the past couple of years. Exposure to pet care, health and at-home coffee products in particular helped in lockdown conditions. They're also exactly the kind of thing people buy over and over again in normal times.

The outlook, despite ongoing pressure from inflation, is pretty good. There's even scope for margin expansion this year, no mean feat in current conditions. Though, that'll be reliant on volumes staying firm as there's unlikely to be any let up on the price side of things.

Nestlé relies on hefty research & development spending to provide fuel for volume growth. New varieties and formats of existing popular brands benefit from the much larger marketing and admin budgets, ensuring they're front and centre of consumers' minds. That, in turn, encourages reliable revenues. Extra sales boost profits, and profits can be paid out as dividends or reinvested in next year's products.

That virtuous cycle has seen the dividend increase every year for 29 years - remember, all dividends are variable and not guaranteed.

There's been a bit of housekeeping recently, clearing out low-potential brands and stocking up in growth areas such as The Bountiful Company's nutrition and supplements business. A higher growth portfolio can only be a good thing, and the Group's been trimming its stake in L'Oréal, which stood at 20.1% last we heard.

Nestlé's a strong business, with a host of great brands and several growth levers still to pull. Exactly how volumes will react to continued higher prices remains to be seen, but on current trends, they're stubborn enough to support top and bottom-line performance. All being well, mid-high single-digit growth is on the cards. Of course, there's no guarantees.

At those levels, growth won't be shooting any lights out. Nonetheless, in the current environment, steady comes at a premium. The main thing keeping a check on the optimistic view is on the valuation side, which looks to have priced in a good chunk of those strengths.

Nestlé key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 25th April 2023