Nestlé SA NSRGY -1.76% raised its full-year sales guidance for the second straight quarter, buoyed by strong demand for coffee and pet food, despite the continuing challenges of rising input costs and supply-chain snags.
The world’s largest packaged-food company on Wednesday reported a 6.5% rise in third-quarter organic sales growth, with revenue for the first nine months of the year coming in at 63.29 billion Swiss francs, equivalent to $68.60 billion. Nestlé said it now expected full-year growth between 6% and 7%, up from its previous guidance of between 5% and 6%.
The upbeat quarter provides an early sign that consumer habits acquired during the pandemic, such as drinking more and better quality coffee at home, could continue to benefit the company, even as virus-related restrictions receded in some major markets—a view expressed by Nestlé executives.
While some analysts questioned whether the coffee boom would continue as lockdown restrictions eased, Nestlé said the category was its largest contributor to growth, with all three of its main brands—Nescafé, Nespresso and Starbucks —growing strongly.
The Swiss company has made coffee a priority in recent years, including acquiring the rights to sell Starbucks-branded products in stores.
Nestlé also said other products that have boomed during the pandemic, such as pet food and vitamins, minerals and supplements, had continued to perform well. It said e-commerce sales, another beneficiary since Covid-19 struck, were up 17% in the first nine-months of the year, even as out-of-home sales increased by 23%.
However, like others in the consumer-goods industry, Nestlé is contending with rising commodity prices and higher freight costs that it said would continue to suppress its profit margin.
The company said its underlying trading operating-profit margin is expected to be around 17.5% for the full year, reflecting an initial delay between the rise in input costs and Nestlé’s ability to raise prices.
Nestlé said it increased prices by an average of 2.1% in the third quarter but didn’t disclose details about individual product lines.
Chief Executive Mark Schneider said the business had worked hard to “navigate input cost inflation and supply chain constraints.”
On Tuesday, Danone SA, DANOY -2.49% the owner of Evian water and Dannon yogurt, said it expected inflation from material, logistics and manufacturing to rise to around 9% in the second half of the year, up from around 7% in the first half of the year. Procter & Gamble Co. PG -1.18% , maker of Tide detergent and Crest toothpaste, said it would start charging more for razors and certain beauty and oral care products as costs for everything from warehouse space to raw materials rose faster than the consumer-products company expected.
On Wednesday, Nestlé said its North American business had posted mid single-digit growth in the context of significant supply-chain constraints during the first nine months of the year, while its China business posted low single-digit growth, affected by lower sales of infant nutrition products.
Nestlé shares rose more than 3% in early trading and are now up 12% in the year to date.
—Giulia Petroni contributed to this article.
Write to Nick Kostov at [email protected]
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