19 October 2023
If you are covering Nestle and Pernod Ricard’s recent results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
Nestle
"Nestle stands as the super tanker of the food industry and as such often has steady but unexciting results. However, its prices have seen a 6% increase, a slight decline from the previous quarter's 9% surge. Interestingly, even with these price elevations, volumes have remained nearly stable, witnessing a small 0.3% decrease. The management attributes this volume decline to one or two isolated incidents. The vitamins and nutrition segment experienced a dip, and there were challenges in bottling sufficient quantities of Perrier. Excluding these factors, there would have been a modest increase in volume. Nonetheless, its sales demonstrate resilience against these price hikes.
"When it comes to the growing concerns around anti-obesity drugs, Nestle asserts that it has observed no substantial impact. Its argument hinges on the belief that consumers relish the taste of its products to such an extent that they will continue purchasing them, irrespective of an increase in the use of these drugs. While it's still premature to draw any definitive conclusions, current indications suggest that these health trends won't severely disrupt its business.
"There are beliefs that these drugs like Novo Nordisk’s Wegovy and Ozempic used for weight loss will impact businesses who operate in the snack markets. Such trends could potentially dent the sales, as consumers simple don’t want the calories anymore. This will take a while to fully play out and at present Nestle currently enjoys a premium valuation.
Pernod Ricard
"Pernod's quarterly results slightly surpassed its earlier weak first quarter guidance. The primary areas of concern were the US and China. However, a closer examination of the US data reveals certain technical aspects that suggest the situation isn't as dire as it appears at first glance. In fact, the numbers have shown resilience, especially during the summer months.
"In China, the company are seeing early indications of a rebound, signalling that the company might be navigating through its challenging phase. Within overall sales down 2% pricing saw an increase of 7%, implying a notable volume decline of 9%. Despite this, both the US and China recorded a sales decrease of 8%.
"As for its medium-term outlook, while Pernod's guidance remains consistent, there's an expectation that it might touch the lower end of the spectrum this year. From a broader perspective, spirits as a sector appear fundamentally stronger when compared to both wine and beer. Pernod may have weathered a difficult period, but there are clear indicators suggesting it is on the path to recovery."
