MILAN – Swiss food giant Nestle reported its best quarterly sales growth in five years on Friday as consumers bought everything from Purina pet food to Nescafe and Nespresso preparing for the coronavirus lockdowns.
Organic growth reached 4.3%, driven by the Americas and Europe, the Middle East and North Africa, it said.
However, total reported sales for the three months to the end of March fell 6.2% to 20.8 billion Swiss francs ($21.30 billion) mainly due to divestitures of its Skin Health and U.S. ice-cream business last year.
Nestle maintained its guidance for the full year, saying it expects improvement in organic-sales growth and underlying trading operating profit margin. It said it expects underlying earnings per share in constant currency and capital efficiency to increase.
“As it is still too early to assess the full impact of Covid-19, we maintain our original full-year 2020 guidance for the time being,” Nestle said.
Nestlé also said it was launching a 500 million Swiss franc (US$512 million) programme to help the cafés and restaurants it supplies by extending payment terms and suspending rental fees for coffee machines. It also agreed to maintain orders from its dairy suppliers who have faced “significant demand disruptions.”
Nestlé: Key figures during Q1
- Organic growth reached 4.3%, with real internal growth (RIG) of 4.7% and pricing of -0.4%. Growth was supported by strong momentum in the Americas and Zone EMENA. Zone AOA saw a sharp sales decline.
- Total reported sales decreased by 6.2% to CHF 20.8 billion (3M-2019: CHF 22.2 billion). Acquisitions net of divestitures reduced sales by 4.7%, foreign exchange reduced sales by 5.8%.
- Portfolio management is on track. The divestment of the U.S. ice cream business for USD 4 billion to Froneri was completed on January 31, 2020. The sale of a 60% stake in the Herta charcuterie (cold cuts and meat-based products) business to Casa Tarradellas is expected to close in the first half of 2020.
- Nestlé has decided to explore strategic options, including a potential sale, for its Yinlu peanut milk and canned rice porridge businesses in China. Nestlé will retain and develop its existing Nescafé ready-to-drink coffee business.
Organic growth reached 4.3%, with RIG of 4.7%. Pricing temporarily decreased by 0.4%, mainly reflecting timing of promotions in North America.
Organic growth was supported by strong momentum in the Americas and Zone EMENA. Zone AOA posted negative growth, mainly due to a double-digit sales decline in China. Organic growth was 7.4% in developed markets, based entirely on RIG. Growth in emerging markets was 0.5%.
By product category, the largest growth contributor was Purina PetCare and its premium brands Purina Pro Plan and Purina ONE. Prepared dishes and cooking aids grew at a high single-digit rate, with improved growth across all brands.
Coffee saw good momentum, fueled by the demand for Starbucks products, Nespresso and Nescafé. Nestlé Health Science posted double-digit growth, reflecting elevated demand for consumer and medical nutrition products.
Acquisitions net of divestitures decreased sales by 4.7%, largely related to the divestment of Nestlé Skin Health and the U.S. ice cream business. Foreign exchange reduced sales by 5.8%, reflecting appreciation of the Swiss franc versus most currencies. Total reported sales decreased by 6.2% to CHF 20.8 billion.
Business impact of the COVID-19 crisis
Nestlé has responded quickly and taken necessary measures to minimize the impacts of this global crisis. To date, the Group has been able to effectively serve its retail partners and consumers despite some local disruptions in the supply chain and temporary staffing shortages. Nestlé’s frontline workers have been instrumental in overcoming these challenges.
The effect of COVID-19 varied materially by geography, product category and sales channel, depending on the timing of the outbreak, the scope of restrictions and consumer behavior:
- Geographies: A majority of markets, particularly in North America and Europe, saw significantly increased growth in March, partially supported by consumer stockpiling. China posted a sharp sales decline, due to movement restrictions in place for almost the full quarter, limited consumer stockpiling and relatively higher exposure to out-of-home channels.
- Product categories: Essential products saw increased demand. Prepared dishes and cooking aids, Purina PetCare, coffee and Nestlé Health Science products reported increased growth. Confectionery and ice cream posted a sales decline, reflecting reduced gifting and impulse buying.
- Sales channels: All markets saw a significant shift from out-of-home to in-home consumption. Out-of-home channels posted negative growth, with significant sales declines for Nestlé Professional, water and Nespresso boutiques. E-commerce sales grew by 29.4%, exceeding 10% of total Group sales for the first time.
Mark Schneider, Nestlé CEO, commented: “The COVID-19 crisis continues to impact all our lives in powerful and sometimes tragic ways. Our thoughts are with all those who have been affected and we extend our deepest sympathies to those who have lost loved ones.
Nestlé has a special responsibility at this time. Our food and beverage products help keep people healthy, provide comfort and support recovery.
Our people, in particular our frontline workers, have shown extraordinary commitment in keeping our business running and meeting consumer needs. We will continue to work hard to provide food and beverages to people across the world, every day.
Our company remained resilient in the first quarter, reflecting our diversified product portfolio and our strong local presence in 187 countries. However, this crisis is far from over and we will face many uncertainties in the coming quarters. We will continue to adapt quickly to changing consumer needs and to challenges in our global supply chains. As a reliable employer and business partner we are meeting our commitments. As a good citizen and trusted neighbor, we continue to offer our help, in particular to the most vulnerable in society. Over the last 154 years, Nestlé has successfully overcome many challenges. We are confident that – together with all those who are fighting against the pandemic and its consequences – we will also overcome this one.”