Nestle Sales Growth Accelerates, Helped by Price Hikes

Sales rose 9.3% on an organic basis in the first quarter, 2 percentage points faster than analysts’ estimates, making this one of Nestle’s biggest beats in years. The stock rose as much as 1.8% in Zurich.

Nestle SA’s sales growth unexpectedly accelerated, led by Purina and Friskies pet food, as the company raised prices at double-digit rates in most of its markets to keep up with soaring inflation.

Sales rose 9.3% on an organic basis in the first quarter, 2 percentage points faster than analysts’ estimates, making this one of Nestle’s biggest beats in years. The stock rose as much as 1.8% in Zurich.

The bulk of the revenue gain came from price increases of 10% or more across most of the world. China was the main exception, with pricing up only 3.9% there. A measure of volume slipped 0.5%.

The performance is a boon for Mark Schneider, who is contending with surging raw material costs in his seventh year as Nestle’s chief executive officer. The results show resilience among big food and consumer-staples companies in the face of the highest inflation in decades: consumers appear to be accepting higher prices without big declines in volume.

Procter & Gamble Co. and Coca-Cola Co. have also recently reported healthy sales growth.

Nestle’s strong start to the year “should alleviate the market’s concerns about demand elasticity and downtrading,” said Guillaume Delmas, an analyst at UBS Group AG.

Petcare revenue surged 16%. The next biggest gains were in confectionery and coffee.

Some Weakness
Despite very strong headline numbers, some units showed weakness: sales declined at Nespresso and the vitamins, supplements and minerals business. Capacity constraints also weighed on the water brand Perrier.

Pricing rose 9.8%, slowing slightly after peaking in the fourth quarter. Barclays analyst Warren Ackerman said the limited decline in volumes was encouraging after a weaker performance in the fourth quarter, with most divisions showing progress.

The expectation-beating growth came amid a portfolio shakeup that was expected to weigh down short-term revenue growth. Nestle has been eliminating underperforming product lines to improve profitability in the long term.

Schneider said last year that Nestle’s peanut allergy treatment Palforzia was a bad purchase and the company shuttered a Buitoni pizza factory in France after a bout of deadly E.coli infections. Last week, it announced a partial disposal of the European frozen pizza business.

Nestle maintained its forecasts for organic sales growth, margins and earnings this year.