Nestle the tastiest pick among food groups, with 4.9% growth

The world’s biggest food group has weathered the Covid-19 pandemic better than some peers, as its focus on high-growth categories helped offset a slump in food sales to restaurants and cafes.

ZURICH: Nestle has raised its guidance for 2020 organic sales growth to around 3% after beating third-quarter expectations with a 4.9% growth, driven by strong demand for pet food, coffee and health products.

The world’s biggest food group has weathered the Covid-19 pandemic better than some peers, as its focus on high-growth categories helped offset a slump in food sales to restaurants and cafes.

In contrast, French peer Danone announced an extensive review this week that could lead to disposals after its like-for-like sales fell 2.5% in the third quarter. Unilever is due to release a trading statement soon.

Kepler Cheuvreux analyst Jon Cox said Nestle remained his preferred pick in food, while Vontobel’s Jean-Philippe Bertschy called it a “must-have stock”, set to emerge a winner from the pandemic.

Demand for food and drinks consumed at home remained strong during lockdowns, while sales of products consumed out of home and on the go – about 15% of Nestle’s sales – fell 26.4% in the third quarter, the maker of Nescafe coffee and KitKat chocolate said in a statement.

Nestle said it wanted it keep developing its portfolio, notably expanding its health science business recently bolstered by the US$2bil Aimmune Therapeutics acquisition.

For the first nine months of the year, Nestle’s organic sales grew by 3.5%, beating the 2.8% in a company-supplied consensus of analysts’ estimates.

Nestle had previously expected organic growth of 2%-3% for this year and some analysts said the increase in forecasts was cautious as a 2% growth in the final quarter would be enough to achieve it. Nestle confirmed it wanted to improve its margin.

Sales in the Americas recorded the strongest growth rate in the nine-month period, while Asia was only slightly positive.

The important Chinese market, where Nestle’s out-of-home business, its Yinlu peanut milk brand and infant nutrition division have been struggling, returned to positive growth in the third quarter, the company said.

Group sales in Swiss francs fell 9.4% to 61.9 billion Swiss francs (US$68.33bil) hit by the strong Swiss franc and divestitures.

Under chief executive Mark Schneider, Nestle has divested its skin health unit, Herta meat and US ice cream brands and put North American waters and Yinlu under strategic review.

Last week, Nestle kicked off the sale of its North American water brands, including Pure Life and Poland Spring, according to four sources familiar with the matter, as the world’s largest food group continues to exit slow-growth businesses.

The brands being sold, which also include Deer Park, Ozarka, Ice Mountain, Zephyrhills and Arrowhead, could fetch around US$5bil, said one of the sources, based on core earnings of around US$600mil.

Schneider – who has bought and sold around 50 businesses since taking over in 2017 – wants to retain control of premium water brands like Perrier and San Pellegrino and sell the rest of the portfolio.

He said in June that he wanted Nestle to shift its focus to better performing water brands which include Acqua Panna while the rest of the business was being put under review.

Private equity funds including Apollo, that focus on turnaround deals and cutting costs to improve profit, are expected to show interest, the sources said. Morgan Stanley is running the sale which has drawn interest from industry players, a source said. — Reuters

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