Nestlé left with mixed feelings after first quarter

Stock image: a cup of Nescafé (Nestlé)
Image: SSokolov / Shutterstock.com

The confinement due to the coronavirus in many countries led to first quarter growth for Nestlé, but Chinese sales fell and recent divestments by the food giant also had a negative impact.

 

Group sales failed to benefit

Nestlé benefited from the Covid-19 lockdowns as consumers bought more prepared dishes and bakery products, resulting in a 4.3 % organic sales increase. Higher sales were seen everywhere except in developing markets and Asia: in China, there even was a double-digit decline in sales due to the pandemic. In mature markets organic growth reached 7.4 %, whereas in emerging markets sales improved by only 0.5 %. Sales prices temporarily decreased by 0.4 %, mainly due to promotions launched in North America.

 

Currency effects and the recent sale of Nestlé Skin Health and its ice cream business in the United States are strongly affecting the Swiss group as well: these divestments reduced sales by 4.7 %, resulting in a decrease in total group sales by 6.2 % to 20.8 billion Swiss francs (20 billion euros). Currency effects pushed sales 5.8 % lower.

 

Further improvement expected

Nevertheless, the group believes that it is and will remain resilient: "We expect continued improvement in organic sales growth and underlying trading operating profit margin. Underlying earnings per share in constant currency and capital efficiency are expected to increase." As a result, Nestlé is one of the few multinationals that is currently sticking to its original forecast for the full year 2020.

 

Nestlé has also decided to "explore strategic options", including the possible divestment, for its Chinese Yinlu peanut milk and canned rice porridge. On the other hand, the Swiss producer wants to focus more on its Nescafé coffee business in China, which is currently filled and distributed by Yinlu. Nestlé promises to invest heavily in the brand.

 

In order to support its customers and suppliers during and after the coronavirus crisis, the Group is launching the "Always open for You" initiative for customers in the out-of-home and food service industries: payment terms have been extended, rental fees for coffee machines were suspended and the customers receive free products. Nestlé also promises dairy farmers to purchase the full volumes previously agreed upon, despite declining demand.