Yahoo Finance KitKat maker Nestle to raise prices as inflation set to hit profits
KitKat maker Nestle (NESN.SW) has said it is planning to hike its prices this year as it combats inflation and tight profit margins.
The Swiss company, which also owns brands such as Nepresso, Nesquik and Purina pet food, warned that cost pressures will likely be higher this year than in 2021.
“It is a safe assumption that our input cost increases for 2022 will be higher than 2021, that is something that we have to reflect in our pricing,” Mark Schneider, chief executive, said.
“There is almost no place in the company that is exempt of inflation now. Some of these things you can hedge against, some not.”
It now expects its underlying trading operating profit margins will be between 17.0% and 17.5% this year, compared with 17.4% in 2021, and 17.7% in 2020.
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Nestle reported organic growth of 7.5% during the last year, the highest in more than a decade and above expectations, thanks to strong demand for coffee, pet food and health foods. Growth was split relatively evenly between developed and emerging markets, it said.
However, 2% of that growth came from price increases. The company lifted prices by 3.1% during the fourth quarter to offset rising operating costs, up from 2.1% in Q3.
Underlying or organic sales, which strip out currency swings and acquisitions, are also expected to grow more slowly by around 5% this year, although 2022 had started well in terms of organic growth.
Schneider added: "We're now well and solidly positioned for sustained mid-single-digit growth performance.
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Net profit rose 38.2% to 16.9bn Swiss francs (£13.48bn, $18.34bn), prompting the company to propose a dividend of 2.80 francs per share versus 2.75 francs for 2020, slightly below expectations.
The stock was trading fairly flat on Thursday on the back of the results.
“Being the world’s largest food manufacturer with 28 brands, Nestle could have issues with cost input inflation, but at the moment cost control remains good, with only a 30bps margin reduction as a result of input cost inflation and price increases,” Chris Beckett, head of equity research at Quilter Cheviot, said.
“Going forward, Nestle’s superior ability to withstand input cost inflation and the reliability of its operating performance justifies the share’s premium valuation.”
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