Nestlé's Sales Up 9%; Price Hikes Offset Cost Increases

Price increases contributed to worldwide revenue growth of 9%, to $67.3 billion, for Nestlé Group in this year's first nine months.

Despite sharp increases in the costs of raw materials--particularly milk and other agricultural products--the food and beverage brands of the world's largest food company performed well as a whole, showing 6.8% organic growth and 8.9% overall growth (including acquisitions and exchange rates). F&B sales totaled $62.6 billion.

Of the F&B growth, 2.6% came from price increases, and 4.6% from real internal growth. Nestlé credited the strength of its brands with its ability to show growth even as it raised prices to recoup costs, and analysts seemed to agree.

Asia/Oceania/Africa saw the strongest growth (9.5% organic, to $12.2 billion), followed by the Americas (8.3%, to $26.2 billion) and Europe (3.8%, to $24 billion).

Performance highlights for specific F&B categories (all growth percentages cited are organic growth, and revenue totals are converted from Swiss francs, at Thursday's rates):



Milk products and ice cream: Nestlé's largest category showed 6.6% growth, to total $13.4 billion. This category had the largest price hikes, and was driven by higher-value price segments and innovation, according to Nestlé. Ice cream (leading brands included Nestlé and Dryer's) performed best in Latin America, Asia and Eastern Europe, in part due to the introduction of products with a stronger nutritional profile, while North American and Western European sales suffered as a result of a cool summer. NIDO, the world leader in children's milk powder, saw double-digit growth with products containing added probiotics and branded active benefits (BABs).

Prepared dishes and cooking aids: Revenue hit $11.4 billion on 3.8% growth. In North America, Lean Cuisine had double-digit growth, and Stouffer's had high single-digit growth. The Maggi brand did particularly well in emerging markets.

Powdered and liquid beverages: This category had 10% growth, reaching $10.9 billion. Improved-nutrition Nesquik did particularly well in the U.S. Strong performers overseas included Nespresso and the launch of Nescafé Dolce Gusto in Europe and Nescafé Protect (a new, soluble coffee with higher antioxidant content) in Asia.

Pet care: Consumers' growing propensity to go premium for their pets drove sales growth of 7.1%, to $7.7 billion. Top performers included Beneful, Fancy Feast, Gourmet Gold, ONE, Pro Plan, Bakers, and Purina Dog Chow and Cat Chow.

Confectionery: Accelerated growth of 5.4%, to $7.2 billion, resulted chiefly from the continuing upswing in premium dark chocolate sales throughout the world. The largest growth occurred in Western Europe (through brands such as Nestlé Noir in France and Perugina Nero in Italy), along with Latin America and Asia.

Waters: This category's momentum slowed a bit, to 6.9% ($7 billon), again due to a cool summer in key European markets. Nestlé Pure Life logged double-digit growth in North America.

Nutrition: 9.7% growth (to $4.9 billion) was driven by the continued strong performance of Infant Formula and Healthcare Nutrition and successful global rollouts of NAN premium starter formulas and Nestlé infant cereals enriched with probiotics. Nestlé's pharmaceuticals business, which includes Alcon and joint ventures Galderma and Innéov, also continued to perform strongly, producing 10.3% growth and reaching $4.7 billion.

Chairman and CEO Peter Brabeck-Letmathe (who will be succeeded as CEO by Paul Bulcke on April 10) affirmed that Nestlé expects to achieve above-target organic growth (approaching 7%, versus its goal of 5% to 6%) for full-year 2007.

He cited Nestlé's emphasis on nutrition, health and wellness as a primary driver of the company's growth and profitability.

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