“So far, we have not seen any material evidence of negative [real internal growth] elasticity linked to price increases,” which grew 5.2% overall and a significant 8.5% in North America during the three months of the year, Nestle CFO Francois Roger said during the company’s first quarter earnings call Thursday.
Rather than slowing in the face of price increases, he said, organic growth grew a healthy 7.6% and sales rose 5.4% to about $23.4b boosted by a 2.4% boost in volume.
The company does not share profits in the first quarter, but Roger characterized the company’s performance as “resilient” with growth remaining well above pre-COVID levels.
“Within retail, e-commerce sales grew by 5%, building on a very strong growth of 39.6% in the first quarter of 2021. Organic growth in out-of-home channels reached 35.6% with sales now exceeding 2019 levels,” he explained.
Consumer spending will likely slow at some point
While consumers so far have accepted price increases from Nestle, and many other CPG food and beverage companies as well, Roger acknowledges there may come a time soon when spending may slow.
“We expect to see some [negative RIG elasticity] going forward,” he said.
But that won’t stop the company from continuing to pass along to consumers higher input costs from inflation, at least for now, he said.
“We expect further price increases over the year to reflect significant cost inflation. Increases will continue to be implemented in a progressively and responsible manner. The impact from cost inflation is expected to be significantly higher in 2022 versus 2021 compared to when we talked to you in February,” Roger told investors and analysts.
‘Cost inflation is expected to be significantly higher in 2022’
He attributed the higher than expected costs partly to the war in Ukraine, which CEO Mark Schneider described as “unspeakable” in terms of its toll on human suffering.
“It also exacerbated supply chain disruptions and inflationary pressures in the food industry,” he said.
In North America, supply chain constrains focus on raw materials, labor, which hindered the company’s ability to run lines fully, and distribution capacity which is “super, super tight,” Schneider said.
Despite these challenges, and a general feeling of uncertainty about the future, Schneider reaffirmed Nestle’s guidance “in all elements,” but did caution that achieving its targeted 17-17.5% range for underlying trading operating profit margin has “become more challenging.”
“This is not an environment where it’s easy to share detailed forecasts. And it’s really, literally, day-to-day, week by week, and this is what we’re fully focused on right now,” he added.
Nonetheless, he said, he remains confident because consumer demand has proved to be resilient so far.