19 October 2022
If you are covering Nestle’s latest results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Nestle reported a good set of results as Q3 sales beat expectations thanks to its ability to pass on price rises to customers without it impacting on demand. Petcare continues to show strong growth and show no signs of slowing down post-Covid as the pandemic puppies are now an engrained member of the family. Confectionary too has done well, while areas exposed to out of home consumption, such as water continue to recover. How long this continues in the face of challenging economic conditions remains to be seen, however.
“Geographically all regions are growing well. Emerging market sales grew 11% including an encouraging performance from Greater China that had been suffering from lockdowns earlier in the year. Developed markets also grew 8% but there was a marked difference between North America (+14%) and Europe (+7%) which suffered from a decline in Culinary sales. This may be the beginning of a trend as the cost of living pressures are greater in Europe.
“Nestle remains a good quality business in difficult times and consequently management has moved sales guidance up to look for 8% growth this year, but maintained margin expectations at 17%. Inflationary pricing is driving the top line but the same pressures are constraining margins. Nestle currently trades on 23x next year's expected earnings which is a justified premium to the wider staples category due to its reliability of its operating performance. However relative performance from here is likely to be driven by the market’s desire for defensive exposure - a positive year to date but not a one way bet.”
