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Nestle Posts Lower-Than-Expected Sales Growth Due to Higher Prices, Expects Volume Recovery by Year-End


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Nestle Posts Lower-than-Expected Sales Growth as Shoppers Resist Higher Prices

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Nestle reported lower-than-expected sales growth for the first nine months of the year. The increase in product prices has made shoppers hesitant, causing the company’s shares to drop by about 2% in morning trade. However, Nestle expects sales volumes to rebound by the end of the year.

For over two years, the packaged goods industry has been raising prices due to higher input costs related to the COVID-19 pandemic and Russia’s invasion of Ukraine. This has led to increased expenses in various areas such as sunflower oil and freight, impacting global supply chains.

Nestle’s price increase of 8.4% was slightly below the average analyst estimate of 8.6%. Sales volumes, measured by real internal growth (RIG), declined by 0.6%, meeting expectations. However, in the third quarter, RIG improved to a decline of 0.3% according to Nestle.

Nestle’s CEO, Mark Schneider, expressed confidence that sales volumes would turn positive in the second half of the year, becoming the main driver of growth. Schneider also mentioned that pricing strategies would be more targeted, focusing on specific brands and countries.

Procter & Gamble (P&G), known for products like Tide detergent and Gillette razors, also reported weak sales volumes. However, they anticipate stabilization and a gradual improvement throughout the remainder of the year.

Aviva portfolio manager Richard Saldanha commented on Nestle’s results, stating that they were slightly underwhelming. He believes that seeing a positive increase in sales volumes will be the ultimate catalyst for the company’s stock performance. Saldanha also noted that pricing has moderated, and improvements in volume should follow.

Investors and analysts are concerned that price hikes may be excessive and recommend companies to prioritize marketing and innovation. Additionally, retailers’ private label brands are gaining market share in the midst of a cost of living crisis.

Nestle reported organic sales growth of 7.8% for the nine months ending in September, excluding the impact of currency fluctuations and acquisitions. This fell slightly short of the average analyst expectation of 8.1%.

The company acknowledges that costs are increasing at a slower pace, but also emphasizes that consumers will continue to pay higher prices for products like soap, toilet paper, and coffee due to years of accumulated expenses.

Nestle maintains its full-year outlook of organic sales growth between 7% and 8% with an underlying trading operating profit margin between 17.0% and 17.5%.

A Nestle spokesperson reassured that the company has not observed any impact on sales from the weight loss drug Wegovy, which has raised concerns in the consumer and retail industry. Walmart, the largest retailer globally, recently reported a slight decline in food consumption due to the use of appetite-suppressing drugs like Wegovy.

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