VEVEY, SWITZERLAND — Nestle SA recorded organic sales growth of nearly 8% in the first quarter of the fiscal year, but company executives are not yet ready to change the fiscal-year outlook of mid-single-digit organic sales growth.
“Our confidence level of getting to an organic sales growth rate of more than 4% has certainly increased on the back of our Q1 performance,” said Ulf Mark Schneider, chief executive officer, in an April 22 corporate sales call. “We are not aware of any material items that might stand in the way. Our cautious revenue growth guidance at this point is mainly based on two reasons. First, the level of comparison for the second half of the year is going to be significantly higher, and second, we wanted to have one more quarter of visibility with regards to the COVID recovery before we revisit our 2021 growth guidance.”
Total reported sales increased by 1.3% to 21.09 billion Swiss francs ($23.08 billion) from 20.81 billion Swiss francs in the previous year’s first quarter. Negative impacts came from net divestitures (1%) and foreign exchange rates (5.3%). All geographic areas reported organic sales growth in the quarter.
“In a nutshell, we saw a rebounding level of business in China based on a very low level of comparison last year, gradual recovery in our out-of-home business, and continued strong demand for retail and in-home consumption around the world,” Mr. Schneider said.
Coffee, thanks to strong demand for Nespresso, Nescafé and Starbucks products, was the largest contributor to organic sales growth. Dairy sales grew at a double-digit percentage rate. Purina PetCare had high-single-digit growth. Vegetarian and plant-based food, led by Garden Gourmet, saw double-digit growth as did confectionery.
E-commerce sales grew by nearly 40% and now make up over 14% of Nestle SA’s total sales.
Nestle executives expect organic retail sales, which grew by 9% in the first quarter, to moderate in 2021 but remain at higher levels than in 2019, said Francois-Xavier Roger, executive vice president and chief financial officer at Nestle.
“We believe that some changes in consumer behavior are here to stay, such as increased working from home, pet parenting, and the search for health and immunity benefits,” he said.
Nestle this year is dealing with input price increases for commodities, packaging material and transportation costs, Mr. Roger said.
“We are hedging and forward-buying to cover some of this exposure, but it only delays the impact for a few months,” he said.
Price increases for Nestle products are another strategy.
“I was particularly encouraged by our progress in pricing (in the first quarter) as many of our input costs are increasing,” Mr. Schneider said. “It was reassuring to see that these pricing steps did not stand in the way of a positive market share development.”
In the Americas zone in the first quarter, organic sales growth was over 7% even though net sales of 8.24 billion Swiss francs ($9.02 billion) were down 1.2% from 8.35 billion Swiss francs in the first quarter of the previous year. Foreign exchange had a negative impact of nearly 9%.
In North America, the performance of Stouffer’s, Lean Cuisine and Life Cuisine supported frozen and chilled food, which was the largest growth contributor. The beverage category grew at a double-digit rate behind strong demand for Starbucks at-home products. Sales grew in home-baking products, including Toll House and Carnation.
In Europe, Middle East and North Africa, organic sales grew 4.4% although net sales of 5.20 billion Swiss francs were down 2.1% from 5.31 billion Swiss francs in the previous year’s first quarter. Net divestitures, most notably the Herta charcuterie business, reduced sales by 3.7%
In Asia, Oceania and sub-Saharan Africa, organic sales growth of 9% led to net sales of 5.09 billion Swiss francs, up 2.3% from 4.97 billion Swiss francs. China, helped by a recovery in out-of-home channels and the timing of the Chinese New Year, experienced double-digit growth.
Nespresso posted net sales of 1.57 billion Swiss francs, up 16% from 1.36 billion. Organic sales growth was 17% due to momentum in e-commerce and innovation.
Nestle Health Science reported organic sales growth of more than 9%. Total net sales rose 22% to 930 million Swiss francs from 765 million Swiss francs.
“This growth was fueled by continued momentum in e-commerce, new product launches and distribution expansion,” Mr. Roger said. “Consumer Care posted double-digit growth with strong contribution from Garden of Life, Vital Protein and Persona. Growth was supported by innovation and sustained momentum in e-commerce.”