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Some Disappointment in Nestle’s Q4 Overshadows Higher-Than-Expected Guidance

We don’t view the results as a sign of weak pricing power, however.

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Securities In This Article
Nestle SA ADR
(NSRGY)

Nestle NSRGY reported fourth-quarter and full-year results with strong organic growth of 7.5% and 8.3% (real internal growth of negative 2.6% for the fourth quarter and 0.1% for the full year), behind company-compiled consensus estimates of 8.8% and 8.6% respectively. From a regional perspective, real internal growth (volume and mix effect) in North America was particularly weak at negative 4.9% in the fourth quarter and negative 1.3% for the full year versus up 0.8% for the fourth quarter and 0.9% for the year in Europe, contrary to stronger/weaker top-line growth numbers reported by peers in North America/Europe. At the product category/business level, prepared dishes and cooking aids as well as milk products and ice cream recorded weak real internal growth numbers too, at negative 6.9% and negative 4.3%, respectively, for the full year. All in all, Nestle gave a rather disappointing picture of volume and mix in the fourth quarter, attributing this to portfolio and stock-keeping unit optimization as well as temporary capacity constraints in water, with the latter being less of a critical driver, in our opinion, given the relatively low revenue contribution in the portfolio. That said, we don’t view the current print as a sign of weak pricing power for Nestle, given that it was primarily caused by underperformance in noncore categories (prepared dishes down and milk products) versus continued resilient performance for core categories (petcare and coffee). For 2023, Nestle introduced organic growth guidance of 6%-8% versus 5% in our model, with cautious guidance on margins at 17%-17.5% (versus 17.2% in our model). We maintain our CHF 109 fair value estimate and wide moat rating. We plan to increase our organic growth forecast for 2023 and maintain our margin forecast (17.2%, within guidance) to reflect upbeat organic growth guidance, but we don’t expect a material change to our fair value estimate as a result of these changes. The shares appear fairly valued.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ioannis Pontikis, CFA

Director of Equity Research in Europe
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Ioannis Pontikis, CFA, is a Director of Equity Research in Europe for Morningstar, where he covers European grocers and global food and beverage companies like Tesco, Unilever, Nestle, and Danone, and manages a team of eight analysts across the Financials and Consumer sectors. He also leads Morningstar’s Equity Research Valuation Committee, advancing the firm's valuation methodology through significant projects such as developing new methodologies, refining our valuation model, and enhancing the efficacy of our ratings.

Before joining Morningstar in 2017, Pontikis spent six years on the buy-side, co-managing a $100M long/short equity fund and leading teams in applying machine learning to stock and equity factor selection models. He developed the fund's valuation and risk assessment framework, achieving strong risk-adjusted performance. Prior to this, Pontikis worked at Nestle S.A. in Athens, focusing on financial reporting, budgeting, and auditing proposals to improve processes.

Pontikis research has appeared in numerous media outlets including Bloomberg, CNBC, Reuters, Guardian, Frankfurter Allgemeine Zeitung among others.

Pontikis holds a bachelor’s degree in business administration from the University of Piraeus’s and a master’s degree in accounting and finance from the London School of Economics. He also holds the Chartered Financial Analyst® designation and studying towards an advanced post-masters degree in portfolio and risk management.

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