The world’s biggest food group Nestlé will raise prices further this year, Chief Executive Mark Schneider said on Thursday after more expensive ingredients fell short of analysts’ expectations for full-year net profit.
He declined to comment on the planned level of price hikes, which he said are necessary to offset the damage caused by higher commodity prices.
For consumers, whose spending power has already been eroded to multi-decade highs by inflation, concerns about their household budgets and weak economies are likely to increase.
The maker of Nescafe instant coffee and KitKat chocolate bars raised prices by 8.2% last year, but that did not fully offset the impact of rising ingredient costs on margins.
“Our gross margin is down about 260 basis points — that’s huge. That’s after all the pricing we’ve done in 2022,” Schneider told reporters.
“We have some markets, like the U.S. and the U.K., where we see persistent inflation, and other markets like China and here in Europe … where inflation is more muted,” Schneider said.
The rest of the packaged goods industry has also raised prices to cope with rising costs for nearly all raw materials after Russia’s invasion of Ukraine, adding to the effects of pandemic-related supply chain logjams.
‘Mixed Emotions’ After Rare Miss
Real internal growth – the company’s indicator of sales volume – rose just 0.1% for the year, weighed down by North America and Nespresso’s business.
Barclays analyst Warren Ackerman said he expected “almost all” of the lower-than-estimated volume to be a result of Nestlé rethinking its product variety and supply chain disruptions.
Ackerman added that the question will be how much volume weakness from these factors persists through the first half of the year.
In most cases, the impact on volume hasn’t prompted consumers to trade up to cheaper private-label products, Schneider said.
Net profit to shareholders fell to 9.27 billion Swiss francs, missing expectations for 11.58 billion francs, although consensus forecasts did not factor in a loss at Nestlé’s Ameon subsidiary last year, analysts said. said
“Nestle’s fourth-quarter and second-half results will lead to some mixed feelings,” said Bernstein analyst Bruno Montagne, adding that Nestlé’s water, confectionery and health science businesses contributed.
He said Nestlé rarely misses and this was a miss.
Shares in Nestlé fell slightly on Thursday.
Nestlé said it targeted organic sales growth in the range of 6-8 percent in 2023 – which reduces the impact of currency movements and acquisitions.
The company’s reported sales for 2022 are expected to rise 8.4 percent to 94.4 billion Swiss francs ($102.31 billion).