Financial results
KitKat achieves single-digit growth for Nestlé after price rises hit profits
Confectionery posted high single-digit growth across the regions, reflecting particular strength for KitKat, seasonal products and key local brands.
But the Zurich-based food group announced it will raise prices further this year, and blamed more expensive ingredients as a factor in missing analyst expectations of full-year net profit.
In a virtual press conference, Mark Schneider, Nestlé CEO, declined to comment on the planned level of price increases, which he said were necessary to offset the damage caused by commodity price rises.
"Our gross margin is down about 260 basis points - that is massive. That is after all the pricing we have done in 2022," Schneider told reporters.
"We have some markets, like the US and UK, where we see strong continued inflation, and other markets like China and like here in Europe… where inflation is more muted,"
The KitKat maker raised prices by 8.2% last year, but that did not fully offset the impact of increased costs for ingredients on margins.
Real internal growth - a company indicator for sales volumes - rose only 0.1% for the year, weighed down by North America and the Nespresso business, Reuters reported.
Nestlé also said its organic growth, which cuts out the impact of acquisitions and currency movements, came in at 8.3%, weaker than the 8.6% expected.
“Last year brought many challenges and tough choices for families, communities, and businesses. Inflation surged to unprecedented levels, cost of living pressures intensified, and the effects of geopolitical tensions were felt around the world,” Schneider said.
For consumers, the news of further price rises across Nestlé’s portfolio, not just confectionery, is likely to add to strained household budgets with inflation already skyrocketing in many countries.
"Looking to 2023, we expect another year of robust organic growth, with a focus on restoring our gross margin, stepping up marketing investments and increasing free cash flow. Nestlé’s value creation model puts us in a strong position to achieve our 2025 targets and to generate reliable, sustainable shareholder returns,” Schneider concluded.
Nestlé full-year results 2022 Snapshot
• Total reported sales increased by 8.4% to CHF 94.4 billion. Net acquisitions had a positive impact of 1.1%. Foreign exchange decreased sales by 0.9%.
• Organic growth reached 8.3%. Pricing was 8.2%, reflecting significant cost inflation. Real internal growth (RIG) was positive at 0.1%. Organic growth was broad-based across most geographies and categories.
• The underlying trading operating profit (UTOP) margin was 17.1%, decreasing by 30 basis points on a reported basis and by 40 basis points in constant currency. The trading operating profit (TOP) margin was unchanged at 14.0%.
• Underlying earnings per share increased by 9.4% in constant currency and by 8.4% on a reported basis to CHF 4.80. Earnings per share decreased by 43.5% to CHF 3.42 on a reported basis, mainly reflecting the 2021 gain on the disposal of L’Oréal shares.
• Free cash flow was CHF 6.6 billion, as working capital increased temporarily in the context of supply chain constraints and capital expenditure remained above historic trendlines.
• Board proposes a dividend of CHF 2.95 per share, an increase of 15 centimes, marking 28 consecutive years of dividend growth. In total, CHF 18.2 billion were returned to shareholders in 2022 through a combination of dividend and share buybacks.
• 2023 outlook: we expect organic sales growth between 6% and 8% and underlying trading operating profit margin between 17.0% and 17.5%. Underlying earnings per share in constant currency is expected to increase between 6% and 10%.
• 2025 targets fully confirmed: we expect sustainable mid single-digit organic sales growth and a return to an underlying trading operating profit margin range of 17.5% to 18.5% by 2025. We expect annual underlying earnings per share growth to be in the range of 6% to 10% in constant currency.
