25 April 2023
If you are covering Nestle’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Nestle issued a strong Q1 sales update this morning, with a particular boost coming from confectionery and PetCare. Group sales grew 9%, beating market expectations by 2%. This was made up by 10% higher prices offset by a 0.5% reduction in Nestle's volume measure. This represents an encouraging sequential volume improvement on Q4. The best consumer staples companies - but not all - are so far able to inflate prices without losing customers.
“Strong growth was achieved across developed markets (+9%) and emerging ones (+10%). The only areas of relative weakness were China (+3%) and the Nespresso business (+3%) where post pandemic normalisation continues.
“By category, growth continues to be very strong in PetCare (+16%) and confectionery (+14%) but is relatively weak in less advantaged categories such as mainstream cooking products and prepared meals (+7%) and water (+3%) which was affected by temporary capacity issues for Perrier.
“Management reiterated 2023 guidance looking for 6-8% organic sales growth, 17-17.5% margins translating into a 6-10% earnings improvement. This together with a 2.7% prospective yield offers an attractive defensive total return. Looking further forward, management expect margins to return to 17.5 -18.5% by 2025.
“Nestle currently trades on 23x this year's expected earnings which is a justified premium to the wider staples category due to its reliability of its operating performance.”
