Nestle Confident Cost Inflation Won’t Take a Bite Out of Margins

By Silke Koltrowitz

ZURICH (Reuters) -Food group Nestle is confident of defending its profit margins against mounting cost pressures this year, planning more price increases after they helped it beat sales and earnings expectations in 2021.

Consumer goods companies are grappling with surging costs for commodities, energy, transport and labour, prompting rival Unilever last week to warn of a drop in margins as it struggles to lift prices enough to offset the extra expenses.

“It is a safe assumption that our input cost increases for 2022 will be higher than 2021, that is something that we have to reflect in our pricing,” Nestle CEO Mark Schneider told reporters on Thursday, declining to give a precise inflation forecast in a “super volatile environment”.

“There is almost no place in the company that is exempt of inflation now,” he said.

Nestle, which has added more high-value products alongside staples such as Nescafe instant coffee and Maggi bouillon cubes, is confident it can keep raising prices without losing too many customers.

It recently bought a majority stake in protein powder maker Orgain to boost its health science business that grew 13.5% last year. Its Starbucks coffee sales were also up over 17%, showing that buyers of these products are ready to pay more.

Nestle stepped up price increases throughout the year to 3.1% in the fourth quarter and said it would continue this year, while seeking efficiencies in the business.

It expects a broadly stable underlying trading operating profit margin of 17.0%-17.5%, after delays between cost inflation and price hikes saw it dip to 17.4% last year.

“Is this (margin guidance) conservative? Yes, it is because being conservative in a volatile environment with significant inflation around us and uncertainty about what will happen later this year is the right way to approach it,” Schneider said.

Nestle typically increases its guidance over the course of the year to avoid disappointing investors.

Vontobel’s Jean-Philippe Bertschy said Nestle’s fundamentals had rarely been as strong, widening the gap to the competition. “Considering the ongoing market uncertainties, we believe that Nestle is a must have.”

Nestle shares, which trade at a premium to Unilever and Danone, were flat at 1010 GMT, in line with the food sector.

Schneider said 2022 had started well and the company was well positioned for sustained mid-single-digit growth and margin improvements in the medium term. It is also open to acquisitions, but will be disciplined, Schneider said.

Underlying or organic sales, which strip out currency swings and acquisitions, are expected to grow by around 5% this year, after an unexpectedly strong fourth-quarter rise of 7.2% and full-year growth of 7.5%, exceeding expectations.

Net profit rose 38% to 16.9 billion francs ($18.3 billion) last year, prompting the company to propose a 5 cent higher dividend of 2.80 francs per share.

Schneider repeated the group was committed to its infant nutrition business, where difficulties in China led to an impairment charge of around 2 billion Swiss francs.

Nestle nominated Apple chief financial officer Luca Maestri and Schneider Electric chief marketing officer Chris Leong for election to its board of directors.

($1 = 0.9214 Swiss francs)

(Reporting by Silke Koltrowitz Editing by Jason Neely and Mark Potter)