Nestlé updates 2022 growth outlook but warns of weaker consumer demand in Western Europe
The world’s largest food manufacturer upgraded its sales guidance for the year and now expects like-for-like net sales growth of 8 to 8.5%, up from 8% anticipated in October.
It revealed new longer-term targets, announcing it would return to an underlying trading operating profit margin of 17.5 to 18.5% by 2025 following a hit from inflation. It also expects to deliver underlying growth in earnings per share of 6 to 10% a year until 2025.
It also revealed the pruning of recently acquired businesses and has decided to explore strategic options for Palforzia, the peanut allergy treatment, following slower than expected adoption by patients and healthcare professionals. The review is expected to be completed in the first half of 2023. Going forward, Nestlé Health Science will sharpen its focus on Consumer Care and Medical Nutrition, it said.
Nestlé will also spin out Freshly, a US meal kits business it acquired in 2020. Nestlé did not disclose the financial terms of the deal but said Freshly “has not driven the scale or performance we had hoped for” after “dramatic shifts in the external business environment”.
Mark Schneider, Nestlé CEO, said: "We have made significant progress in recent years, accelerating organic growth, increasing margins and enhancing capital efficiency. Today, we outline our value creation model and targets for 2025 as we aim to deliver consistently in turbulent times. We will continue to invest for future growth, investing behind our brands, delivering impactful innovation, leveraging digitalization and improving speed and agility. Creating shared value for stakeholders remains our focus, with Good for You, Good for the Planet at the heart of our strategy."
The company added it is following high growth areas like pet care and coffee where ‘demand is strong’. “We do not hesitate to discontinue loss-making or low margin brands,” said Executive Vice President François-Xavier Roger.
Schneider noted the company has focussed on fewer SKUs with a better price architecture over M&A activity to fuel growth.
He also warned that weaker consumer demand in Western Europe poses a risk to its outlook.
“Clearly for the next year the one region I watch with a lot of concern is Western Europe. Consumer behaviour is going to be key. Whether its cost of energy, mortgage costs, the recession, unemployment the effect of inflation on consumer behaviour, it’s a pretty difficult environment and one that in this combination has not been seen for a long time. The 64,000-dollar question is starting from January, what is consumer behaviour going to do? This is when some of the nasties are going to kick in and hit consumers.”