Image source: Nestlé
By Siddharth Cavale and John Revill
(Reuters) – Swiss food giant Nestlé reported its best quarterly sales growth in nearly five years on Friday as consumers stockpiled anything from Purina pet food to Nescafe coffee to frozen meals in preparation for coronavirus lockdowns.
Sales in North America and Europe were particularly strong in March, helping to drive an overall rise of 4.3% in the first three months of the year, beating analyst expectations for a 3% increase.
In North America, Purina Pet care sales rose by a double-digit percentage while Nescafe and Coffee Mate drinks had high single-digit increases.
In Europe, Middle East and North Africa, most categories of Nestlé product won market share, the company said, with its Maggi noodles doing well.
Chief Executive Mark Schneider said Nestlé was working to adapt to the virus conditions and ensure it had enough raw materials and factory capacity to meet the increased demand, while also taking safety precautions against COVID-19.
“Literally everything has been impacted by this,” Schneider said in an analysts’ call.
He predicted a slow recovery once the crisis ended, and also warned against getting carried away by the sales rise as the situation was volatile and buying habits were changing.
Schneider also said it was impossible to say how much of the sales rise was because of stockpiling.
Image source: Nestlé
Nestlé saw its shares trading nearly 2% higher in late trade on Friday, outperforming the Swiss blue-chip index.
Analysts at Jefferies said Nestlé was also outperforming rivals, trading at 24.8 times forward earnings compared with 20.9 times for Unilever and 14.5 times for Danone.
Unilever said on Thursday its underlying sales remained flat in the first quarter. Unilever has a bigger exposure to emerging markets where impact of the novel coronavirus was first felt, triggering stringent lockdowns that curbed consumer spending.
For Nestlé, underlying sales in Asia fell by 4.6% as customers in China stayed away from restaurants and shops for much of the quarter although online sales there jumped.
Demand in China, the first country hit by COVID-19, was starting to recover but was not at pre-crisis levels, the company said.
NEW INITIATIVES
Nestlé said it was launching a 500 million Swiss franc ($512 million) program to help the cafes and restaurants it supplies by extending payment terms and suspending rental fees for coffee machines.
Nestlé also announced that it was exploring strategic options, including a sale of its struggling Yinlu peanut milk and canned rice porridge businesses in China.
The company kept its outlook for the year. It targets continued improvement in organic sales growth, which strips out the impact of acquisitions or divestments, and a higher underlying operating profit margin.
Nestlé would also look at takeover targets despite the uncertain situation, Schneider added.
“This was a strong set of numbers and Nestlé is clearly a winner in home food consumption during the coronavirus crisis, given it has maintained its guidance and is paying its dividend,” Kepler Cheuvreux analyst Jon Cox said.
Taking account of changes to its product portfolio, total sales for the three months to the end of March fell 6.2% to 20.8 billion Swiss francs ($21.3 billion), mainly because of the sale of its Skin Health and U.S. ice cream business last year.
Editing by David Clarke and Barbara Lewis.
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Source: Reuters
