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Coronavirus stockpiling drives best Nestle sales growth in years

imageStock Markets8 hours ago (Apr 24, 2020 04:25AM ET)

(C) Reuters. FILE PHOTO: Jars of Nescafe Gold coffee by Nestle are pictured in the supermarket of Nestle headquarters in Vevey

By Siddharth Cavale

(Reuters) – Swiss food giant Nestle (S:NESN) reported its best quarterly sales growth in nearly five years on Friday as consumers stockpiled everything from Purina pet food to Nescafe coffee to frozen meals to prepare for coronavirus lockdowns.

Sales in North America and Europe were particularly strong in March, helping to drive an overall rise of 4.3% in the first three months of the year, the fastest quarterly growth in nearly five years and above analyst expectations for a 3% increase.

In North America, Purina Pet care sales rose by a double-digit percentage while Nescafe and Coffee Mate drinks had high single-digit increases. Consumers also grabbed more DiGiorno and Hot Pockets frozen meals, giving some respite to the business that has struggled recently.

In Europe, Middle East and North Africa, most categories of Nestle product won market share, the company said. Maggi noodles and plant-based products from its Garden Gourmet brand did well, though water sales declined as fewer people ate out.

“A majority of markets, particularly in North America and Europe, saw significantly increased growth in March, partially supported by consumer stockpiling,” Nestle said in a statement.

Nestle shares were 1.4% higher in early trading on Friday, outperforming the Swiss blue-chip index.

Analysts at Jefferies said Nestle was outperforming rivals, trading at 24.8 times forward earnings compared with 20.9 times for Unilever (L:ULVR) (AS:UNA) and 14.5 times for Danone (PA:DANO).

Unilever said on Thursday its underlying sales remained flat in the first quarter. Unilever has a bigger exposure to emerging markets where the coronavirus hit earlier, triggering stringent lockdowns that curbed consumer spending.

For Nestle, underlying sales in Asia fell 4.6% as customers in China stayed away from restaurants and shops for much of the quarter though online sales there jumped. The Swiss company also said prices had dropped in both North America and Europe.

NEW INITIATIVES

Nestle said it was launching a 500 million Swiss franc ($512 million) programme to help the cafes and restaurants it supplies by extending payment terms and suspending rental fees for coffee machines. It also agreed to maintain orders from its dairy suppliers who have faced “significant demand disruptions.”

Nestle also announced that it was exploring strategic options, including a sale of its struggling Yinlu peanut milk and canned rice porridge businesses in China. The businesses generated sales of 700 million Swiss francs last year.

The company also kept its outlook for the year, which targets continued improvement in organic sales growth, which strips out the impact of acquisitions or divestments, and a higher underlying operating profit margin.

“Despite the ongoing challenges in the supply chain and … fast-changing consumer needs, the company was able to deliver strong growth,” Vontobel analyst Jean-Philippe Bertschy said, adding that the confirmation of its 2020 goals showed Nestle’s ability to navigate the coronavirus crisis.

Taking account of changes to its product portfolio, total sales for the three months to the end of March fell 6.2% to 20.8 billion Swiss francs ($21.3 billion), mainly due to the sale of its Skin Health and U.S. ice cream business last year.

Coronavirus stockpiling drives best Nestle sales growth in years

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