Nestle deals with difficult pricing situation

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by Jeff Gelski

VEVEY, SWITZERLAND — Nestle S.A.’s net profit slipped in the first half of the fiscal year as pricing issues affected results. The company’s frozen foods business in North America improved, however.

“As anticipated, the pricing environment remains challenging,” said Francois-Xavier Roger, chief financial officer of Nestle S.A., in an Aug. 18 earnings call. “We had deflation in developed markets and low commodity pricing overall. We expect stronger pricing in H2, though. We started to take selective price increases in some categories and geographies.”

Net profit of 4,176 million Swiss francs ($4,374 million) was down 12% from 4,766 million Swiss francs in the first half of the previous fiscal year. Basic earnings per share of 1.35 Swiss francs ($1.41) were down 11% from 1.51 Swiss francs.

Francois-Xavier Roger, c.f.o. of Nestle

Nestle grew gross margin and trading operating profit through further premiumization, cost discipline and input cost tailwinds. Trading operating profit for the half year was 6,611 million Swiss francs, up from 6,435 million Swiss francs.

Nestle has started to see some increases in commodity pricing, Mr. Roger said.

“There is always a time delay between what happens on the commodity market and what is passed on to consumers, but yes, we are confident on the fact that pricing is going to improve,” he said.

Nestle in the first half had total sales of 43,155 million Swiss francs ($45,203 million), up 0.7% from 42,843 million Swiss francs. Foreign exchange had a negative effect of 2%. The net result of acquisitions and divestitures was a negative 0.8%.

“In developed markets we grew by 1.9% in organic growth, which we consider as solid,” Mr. Roger said. “This is the outcome of our strategy of innovation, premiumization, active portfolio management and mix. We had real internal growth in developed markets at 2.6%, which is good. This is actually the highest in many years.

“We are facing in developed markets deflationary pressure across many markets with negative pricing, and we do not expect any improvement in that area.”

The Nestle Waters division had sales of 3,937 million Swiss francs behind 4% organic growth and double-digit growth in emerging markets.
The Nestle Waters division had sales of 3,937 million Swiss francs behind 4% organic growth and double-digit growth in emerging markets.

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