Daily Management Review

Nestle’s Margins Will Not Be Impacted By Cost Inflation, Company Says


Nestle’s Margins Will Not Be Impacted By Cost Inflation, Company Says
Nestle is optimistic in its capacity to protect profit margins despite rising costs this year and is contemplating more price hikes after exceeding sales and profits targets in 2021.
Consumer products businesses are battling with rising commodity, energy, transportation, and labor costs, prompting competitor Unilever to warn last week of a decline in margins as it battles to raise prices enough to offset the additional charges. 
"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. He however did not comment on providing any precise forecast on inflation in a "super volatile environment".
"There is almost no place in the company that is exempt of inflation now," he said.
Nestle believes it can maintain raising prices without losing too many customers since it has launched additional high-value items alongside staples like Nescafe instant coffee and Maggi bouillon cubes.
It recently purchased a full stake in protein powder manufacturer Orgain in order to improve its health science division, which grew 13.5 per cent last year. Starbucks coffee sales increased by almost 17 per cent, indicating that consumers are willing to spend more on these products.
Nestle increased prices throughout the year, reaching 3.1 per cent in the fourth quarter, and said it will do so again this year while looking for business savings.
After a decrease to 17.4 per cent last year due to delays between cost inflation and price hikes, it predicts a broadly constant underlying trade operating profit margin of 17.0 per cent -17.5 perc ent this 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 usually raises its guidance throughout the year in order to avoid disappointing investors. Nestle's fundamentals, according to Vontobel's Jean-Philippe Bertschy, have rarely been as solid, extending the gap with the competition.
"Considering the ongoing market uncertainties, we believe that Nestle is a must have."
Nestle shares were steady, in line with the food industry, although trading at a premium to Unilever and Danone.
Schneider stated that 2022 was off to a good start and that the firm was well positioned for continued mid-single-digit growth and margin expansion in the medium term. It is also open to acquisitions, although Schneider stated that it will be disciplined.
Organic sales, which exclude currency fluctuations and acquisitions, are forecast to climb by roughly 5 per cent this year, following an unexpectedly high fourth-quarter rise of 7.2 per cent and full-year growth of 7.5 per cent, both of which were above expectations.
Last year's net profit increased by 38% to 16.9 billion francs ($18.3 billion), prompting the business to recommend a 5 cent increase in the dividend to 2.80 francs per share.
Schneider reiterated the company's commitment to its infant nutrition sector, which had an impairment charge of about 2 billion Swiss francs due to issues in China.
Apple's top financial officer, Luca Maestri, and Schneider Electric's chief marketing officer, Chris Leong, have both been nominated for election to Nestle's board of directors.