Nestlé disappoints the financial community with annual results for 2023
Published: Thursday, Feb 22nd 2024, 13:20
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Nestlé has surprised its shareholders and analysts negatively for once: high inflation, problems in the healthcare business and the strong Swiss franc caused the company to perform worse than expected. Now the company wants to get back on the road to success.
Nestlé was unable to deliver what was expected in 2023. Sales, operating profit and EBIT margin were lower than anticipated. And although the company increased sales volumes again in the last quarter as announced after five quarters of decline, the sales volume - the so-called RIG - fell by 0.3 percent for the year as a whole. On average, analysts had only expected a decline of 0.1 percent.
Market participants are not used to weakness from the success-accustomed Group. They were correspondingly disappointed in their comments. There was talk of a "year to forget" and a "worrying" development. Even the dividend increase of 5 centimes to 3.00 Swiss francs per share was no consolation. The share price of the world's largest food manufacturer fell by 4.4 percent to 94.74 francs in the early afternoon. The shares are thus as low as they were at the start of the pandemic and are dragging down the entire leading index due to their weight in the SMI.
Problems with health and water division
At the virtual media conference, CEO Mark Schneider emphasized that the food industry has been in the midst of a "historic wave of inflation" over the past two years. This had dampened demand. In addition, the strong Swiss franc depressed sales by 7.8 percent.
But Nestlé also had to contend with problems of its own making. For example, an IT problem in the health division Nestlé Health Science (NHSc) impaired the supply chains. As a result, the Group sold 3.2 percent fewer products there, although the division is a declared pillar of growth.
The volume of water sold also fell by a full 5.1%. Among other things, there were capacity bottlenecks at the Perrier brand. After it became known that the company had been targeted by the authorities for using non-compliant water purification practices in France and Switzerland, Nestlé now also wants to review its other sites.
Premiumization is progressing
However, the Group's restructuring - Nestlé is divesting itself of less profitable business areas and focusing increasingly on premium products - is making progress. The lucrative premium products now account for 36 percent of sales. Ten years ago it was only 11 percent.
This is particularly evident in the pet food segment: this division, which now generates one in five Swiss francs for Nestlé, grew in particular thanks to the "Purina Pro Plan" brand, under which Nestlé sells its dog and cat food developed by veterinarians and nutritionists.
Pet food, for example, was once again the absolute top seller and increased in volume by 2.8%. Together with price increases of 12.1%, this resulted in organic growth of 12.1% - significantly higher than all other divisions.
The three strongest areas of animal feed, coffee and nutrition (this category includes, for example, food supplements etc.) now account for 63% of Group sales. The analysts at ZKB expect the portfolio restructuring to continue, which is "somewhat underestimated" by the market. In any case, Nestlé is on track for its medium-term targets.
For its medium-term targets (until 2025), Nestlé continues to aim for mid-single-digit sales growth and an adjusted operating margin of between 17.5 and 18.5 percent. For the current year, Nestlé is targeting organic growth of "around 4 percent" and a "slight increase" in the operating margin.
©Keystone/SDA
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