Nestle and Danone see sales fall as customers balk at higher prices

By Louis Goss

Nestle's Switzerland listed shares fell 4% on Thursday

Nestle, the world's biggest food seller, and its French rival Danone have both reported drop in their sales over 2023, caused by cost conscious customers balking at higher prices.

Shares in Nestle fell 4% on Thursday after the Swiss firm reported a 0.3% drop in its closely-watched real internal growth (RIG) metric - which measures the volumes of products it sells - following its decision to push ahead with price hikes that drove customers away from its products.

"Unprecedented inflation over the last two years has increased pressure on many consumers and impacted demand for food and beverage products," Nestle CEO Mark Schneider said.

The sharper than expected drop in Nestle's sales followed its push to increase its prices by 7.5% throughout 2023 in line with its efforts to push up its profit margins, which have fallen over the past two years as inflationary pressures have increased the costs of the ingredients it uses, including cocoa.

The Swiss firm's woes were mirrored in results posted by French yogurt seller Danone which also reported a 0.4% drop in its volumes after hiking its prices by 7.4% throughout 2023.

Nestle's (CH:NESN) Switzerland listed shares fell 4% on Thursday having fallen by 13% over the previous 12 months. Shares in Danone stayed roughly flat on Thursday having gained 13% over the past year.

The slump in the Nestle's real internal growth saw the company fall short of analysts' expectations, following forecasts it would see the key metric increase by 0.1%, according to 21 company watchers polled by Nestle itself.

The Kit Kat seller reported sales also fell 1.5% to 93 billion Swiss francs ($ 106 billion), even as the Nescafe maker increased its gross profit margins to 45.9%, up from 45.2% in 2022, in line with plans to achieve gross margins of 50% in the longer term.

Foreign exchange rates had a further 7.5% negative impact on Nestle's sales following a surge in the value of the Swiss franc.

Looking ahead, Nestle outlined plans to focus on increasing its volumes, as it predicted it would achieve organic sales growth of 4% throughout 2024 while also making moderate increases to its profit margins.

"Looking to 2024, we are prioritizing volume- and mix-led growth with increased brand support, as we enhance value for consumers through active innovation and renovation, premiumization, affordability and more nutritious options," Schneider said.

Danone (FR:BN), which owns brands including Volvic and Activia, saw its sales fall 0.1%, to EUR27.7 billion ($30 billion), as its sales were also hit by an upswing in the value of the euro compared to the majority of other currencies.

The French company's results fell roughly in line with analysts' forecasts, as the company also successfully boosted its margins. Jeffries analysts said Danone's results "are consistent and good enough across the piece to support the shares today relative to peers."

-Louis Goss

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02-22-24 0642ET

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