Nestle ‘still in repairing mode’ warns CEO Mark Schneider, as Swiss giant lowers sales outlook and seeks to lure cost-conscious customers back
Nestle SA lowered its sales outlook for the year as consumers balk at price increases on branded food, water and pet-care products that had driven revenue growth during a post-pandemic bout of inflation.
Nestle now expects sales to grow at least 3%, lower than the roughly 4% it had previously targeted. The world’s biggest food company has struggled to win back market share after shoppers switched to cheaper alternatives.
The shares fell 3.4% early Thursday in Zurich and they’re down about 14% for the past 12 months.
Revenue rose 2.1% in the first half, compared with the 2.5% expected by analysts, the Swiss maker of Nespresso, Evian and Purina said.
Almost all of that growth came from higher pricing, which sharply slowed in the second quarter. Nestle’s coffee business, boosted by the rising price of the commodity, was the highest contributor to organic growth, increasing in the mid-single digits.
A cost-of-living crisis has taken its toll on consumers who’ve traded down to supermarket brands, and consumer giants like Nestle have struggled to coax them back.
Faced with lower growth, Nestle could face pressure to cut costs more aggressively and consider whether acquisitions or disposals are needed to drive profitability.
After a period of high input cost inflation, Nestle has been building back its gross margin: It rose to 47% in the first half from 46% two years ago, but remained below 2021 levels.
“We are still in repairing mode,” Chief Executive Officer Mark Schneider said on a call with journalists. The gross margin will come under pressure in the second half because of higher coffee and cocoa prices, he added.
Schneider has turned to innovation — including a range devised for people taking GLP-1 weight-loss drugs — to convince investors that the company has room left to grow. Nestle will launch new products addressing consumer trends this year, he said Thursday. The GLP-1 range will hit the shelves at the end of the third quarter.
