Nestle Sales Beat Estimates on Coffee as Competition Heats Up

  • Nescafe Dolce Gusto revenue is expanding at 20% growth rate
  • Nespresso maker is boosting marketing as rivals crowd in

Nestle Sales Beats Estimates, Here's How

Nestle SA, the world’s biggest food company, reported first-quarter sales that beat analysts’ estimates as Nescafe and Nespresso were boosted by marketing to ward off competitors in coffee.

Sales rose 3.9 percent on an organic basis, the Vevey, Switzerland-based bottler of Perrier water said Thursday. Analysts had estimated 3.6 percent. Nestle expects sales growth to accelerate in the second half, Chief Financial Officer Francois-Xavier Roger said on a call with analysts.

Nestle’s world-leading coffee business faces a fresh challenge from JAB Holding Co., which has spent more than $30 billion acquiring assets like Keurig Green Mountain Inc., the maker of the U.S.’s most popular single-serve coffee system. Nestle’s revenue from powdered and liquid beverages -- predominantly the coffee business -- rose 6.3 percent, boosted by advertising and promotions.

“Nestle invested money into marketing in the fourth quarter, which actually dampened group margin in 2015, but is now paying off,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. “It’s taking advantage of the uncertain situation among competitors in coffee amid JAB’s rapid acquisitions of multiple businesses.”

The shares rose 1.7 percent to 72.40 francs as of 10:33 a.m. in Zurich. That gives the Vevey, Switzerland-based food processor a market value of about 230 billion francs ($237 billion), making it Europe’s biggest company.

The first-quarter growth rate is the slowest since 2009. Shipments rose 3 percent, Nestle said. Pricing boosted sales by 0.9 percentage point. Roger said the company expects further momentum in the second half, helped by more favorable comparisons and possible improvements in pricing in some emerging markets like Brazil and Russia.

Unilever said Thursday it’s focusing on volume and not price as deflation erodes sales in Europe.

Prices for the basket of Nestle’s main raw materials -- including coffee, milk and palm oil -- have dropped about 30 percent over the past two years, the company said. They may have touched bottom, which would make it easier to raise prices to consumers, Roger said.

Maggi instant noodles regained market share in India after last year’s product recall though the comparison with the year-earlier period was difficult, Nestle said. Roger said inflation has disappeared in China, where Nestle is struggling to revive sales of its Yinlu peanut-milk beverages. Roger said the brand is “not where we want it to be.”

The maker of Gerber baby food confirmed its forecasts for 2016. Nestle said in February it expects organic revenue growth to be similar to last year’s 4.2 percent and below its long-term target because it’s hard to raise prices. Nestle also said at the time it aims to achieve improvements in margins and underlying earnings per share in constant currencies.

Before it's here, it's on the Bloomberg Terminal.