Nestle Cuts Sales Forecast as Shoppers Reject Price Hikes

By Thea Felicity

Jul 25, 2024 11:10 AM EDT

This photograph taken on September 15, 2022, shows a view of the entrance of the factory of the Buitoni group, with the logos of Nestle and Buitoni, in Caudry, northern France. - The food industry group Nestle will make an announcement on the future of the site on September 15, 2022. (Photo by Denis Charlet / AFP)
(Photo : DENIS CHARLET/AFP via Getty Images)

Nestle has lowered its sales forecast for the year, citing consumer resistance to recent price increases on its food, water, and pet-care products, according to Yahoo Finance. The Swiss company, known for brands like Nespresso and Purina, now expects sales to grow by at least 3%, down from the previous target of around 4%.

Shares of Nestle fell by as much as 5% in Zurich following the announcement, marking a 14% decline over the past year.

Analyst Jean-Philippe Bertschy from Vontobel described the revised outlook as a "cold shower" that is unlikely to appease skeptical investors, though he acknowledged the move as a prudent step towards providing more realistic guidance.

Nestle's Revenue Due to High Consumer Product Prices

In the first half of the year, Nestle's revenue rose by 2.1%, falling short of the 2.5% growth anticipated by analysts. This modest increase was primarily driven by higher prices, with deceleration noted in the second quarter.

Fortunately, the company's coffee business, buoyed by rising commodity prices, was the main contributor to organic growth, increasing in the mid-single digits.

However, facing slower growth, Nestle may need to consider more aggressive cost-cutting measures and potential changes to its portfolio through acquisitions or disposals to enhance profitability.

Despite recent high input cost inflation, Nestle has managed to rebuild its gross margin to 47% in the first half, up from 46% two years ago, though it remains below 2021 levels.

As a response, CEO Mark Schneider emphasized the company's ongoing efforts to recover, mentioning that the gross margin will face pressure in the second half due to higher coffee and cocoa prices.

Currently, Schneider is also focusing on new product launches. This includes a range designed for people using GLP-1 weight-loss drugs, set to hit shelves at the end of the third quarter, as reported by VCPost.

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