Nestle
Nestle’s trading update beat market expectations as it passed on higher costs to consumers. In addition to announcing the hikes, it said more price increases were likely considering the increase in raw material input costs.
Results for the third quarter ended September 2021 reflected an organic sales increase of 6.5% on the back of price increases of 2.1% and volume growth of 4.4%. The global diversified food group had a strong recovery in retail sales and a robust turnaround in out-of-home sales due to a relaxation of Covid restrictions.
The portfolio of strong diversified products, and large geographic footprint, have resulted in Nestle gaining market share despite a volatile trading environment. Emerging market sales grew 8.3% with Brazil, India, and Russia performing well. Developed market sales were up 7.1%.
In terms of products, confectionary sales grew 9.5%, milk products and ice cream sales rose 6.4%, and prepared and cooking aids increased by 7.5%. Nestle also experienced strong sales in the Petcare division, of 12.1%, as well as Nespresso growth of 11%.
Organic Health Sciences, a relatively new entity within the group, reflected growth of 14.3% and continues to roll-out plant-based alternative to popular meat products like burgers, sausages, and tuna. This trend is now becoming mainstream and is still only in its infancy.
Organic revenue growth guidance for the current year to December 2021 is between 6% and 7%, which is up on previous expectations for growth of between 5% and 6%. Underlying operating profit margins are estimated to be around 17.50%.
Nestle continues to invest in new products and capacity expansion on the back of strong demand. This is in spite of an estimated rise in input costs of 4%, which should be offset by volume and price increases, as well as product mix.
Delivery by management has been consistent with innovation a major positive for the Swiss giant. The company has a strong balance sheet, and cash flows - and share buy backs as well as a strategy of investing in growth has proven to be a successful formula for both management and shareholders. The Nestle share price is on a PE of 26x and is, for new investors who are prepared to be patient, a fair valuation for this high-quality company. We are long term investors in in the stock in managed portfolios.
