Nestlé has stuck with its full-year outlook despite inferring that consumers are stretched and have yet to feel the impact of the group’s most recent price rises.
CEO Laurent Freixe again refrained from pinpointing an actual organic growth target for the year, sticking to language for an improvement over Nestlé’s 2.2% pace in 2024.
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He also said the Swiss giant was aiming for its underlying trading operating profit margin (UTOP) to be “at or above” 16% as the company plans to “invest for growth”.
Aside from the implications of the 2.1% pricing put in place in the first quarter on the back of still elevated cocoa and coffee costs, the impact of tariffs seems likely to be felt more from the general operating environment and the consumer, rather than on Nestlé itself.
And strength in the Swiss franc amid a generally weak US dollar due to the uncertainly pervading markets around Trump’s tariffs, is likely to weigh on the UTOP margin, CFO Anna Manz suggested today (24 April) as she discussed Nestlé’s first-quarter numbers alongside the CEO.
While Freixe reiterated that 90% of the KitKat maker’s production is carried out locally in Nestlé’s largest markets of the US, Europe and China, insulating the company to some degree from the tariffs, the language around the guidance suggested some caution.
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By GlobalData“This is based on our assessment of the direct impact of current tariffs and our ability to adapt. The indirect impacts – on consumers and customers, as well as currencies and commodity prices – remain unclear at this stage,” Freixe said with respect to the unchanged outlook.
The language used in today’s results presentation and repeated on a call with analysts also suggested challenges will remain.
“An environment of heightened macroeconomic and consumer uncertainty,” is how Freixe framed the first quarter. Similar comments ensued for the Americas – a “challenging macroeconomic environment with fragile consumer confidence” – and for Europe too – an “ongoing fragile consumer environment”.
“Overall, the situation continues to be dynamic, with heightened risks and uncertainty,” Freixe said.
Nestlé and pricing
Numbers wise, Nestlé registered reported growth of 2.3% in the quarter and an organic print of 2.8%, taking group sales to SFr22.6bn ($27.3bn). Real internal growth (RIG), which strips out the effect from pricing on the organic numbers, was 0.7%.
The results commentary said RIG “reflected short-term impacts of consumers and customers adjusting to price increases”.
Manz told analysts RIG was “dampened by soft consumer demand”, with confidence “fragile even before the increasing macroeconomic and political uncertainties”.
She said it is “critical” the Nespresso brand owner prices for the impact of coffee and cocoa prices to provide the margin for future brand investment.
However, the CFO added it is “too early to get a clear read on elasticities”.
“We now need to see the impact of price increases on consumer demand in coffee and confectionery, which we’re watching carefully,” she said.
Explaining the wider scheme of the tariff implications and offsets, Manz said: “The impact of importing Nespresso into the US and some soluble coffee will be impacted by tariffs.
“In the overall scheme of our business, this is manageable where we sit today, and we are looking at a number of different mitigating actions. Those include a number of things around load balancing, how we source things, as well as pricing is also another lever.”
Nestlé’s market share should improve over the year, along with RIG and organic growth but the guidance should be viewed through an annual lens rather than on a quarter-by-quarter basis, she said.
Asked to quantify the impact on the profit margin as a result of the strength in the Swiss franc, as a result of market uncertainties, Manz provided some historical perspective.
“If you look backwards over the last few years, what you will see is that the rule of thumb is roughly a 5% strengthening of the Swiss franc has a 10-to-15 basis-point negative movement on the UTOP margin.
“Now that is a rule of thumb because, of course, it depends on market mix and specific currency movements within the [currency] basket, but that will give you an order of magnitude.”
Freixe said Nestlé continues to see commodity input inflation in the high single-digit range as pricing of 3% was delivered in Europe and 1.7% in the Americas.
He provided some thoughts on the trading environment and contingencies.
“We entered 2025 with a consumer who was not optimistic, to say the least, cautious, maybe concerned by the impact of inflation and economic developments. I think uncertainties created by economic policies, trade wars and the evolution of the financial markets have increased the concerns and created more uncertainty.
“We are raising our game when it comes to cost savings, cost efficiency and productivity to be able to invest in our brands, strengthen the core, deploy big bets and address under performance. We very confident with our strategy the way it is unfolding.”
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