(Bloomberg) -- Nestle SA shares rose the most since 2009 after sales growth at the world’s biggest foodmaker edged up from historically low levels in the final quarter of last year.
Revenue rose 2.7% on an organic basis, the maker of Nespresso coffee and KitKat candy bars said Thursday, above analyst estimates for growth of about 2%. For the full year, sales increased 2.2%.
The results indicate a first step toward a recovery despite a challenging environment, said Vontobel analyst Jean-Philippe Bertschy in a note.
The stock climbed as much as 6.7% in Swiss trading, buoyed in part by relief that management stuck to its financial targets following multiple warnings last year. The shares are still down 13% in the last 12 months.
‘Reassuring’ Results
Chief Executive Officer Laurent Freixe, who took the helm in September after the surprise ouster of Mark Schneider, is seeking to revive Nestle’s sagging growth with the help of higher ad spending and a focus on faster-growing brands. To free up funds for investment in marketing, Nestle previously announced it would seek at least an additional 2.5 billion Swiss francs ($2.8 billion) of cost savings by 2027.
The Nescafe maker said it has already secured about 300 million Swiss francs in cost reductions this year. The bulk of these savings came from procurement efficiencies, with the rest from operational efficiencies, Freixe said on a call with journalists.
Nestle repeated its outlook for an improvement in organic sales growth in 2025. It also said a key profit margin will be at least 16% this year, even as it invests in its brands.
“The update was reassuring for those who expected a decommittment to 16% operating margin in 2025 and a flat dividend,” said David Hayes, an analyst at Jefferies. However, he said the commitment to organic sales growth in 2025 “is soft” and questioned the “credibility” of the cost-saving program.
Unilever Declines
Under Schneider, Nestle relied on higher prices to drive sales during the recent inflationary period, prompting shoppers to switch to cheaper brands. The company has since had trouble winning them back.
Nestle rival Unilever Plc forecast growth in both sales and profitability and started a €1.5 billion ($1.6 billion) share buyback Thursday. However, it also warned of a slow start to the year, held back by still volatile consumer demand and higher commodity costs.
Shares of Unilever, which were up nearly 20% in the past 12 months through Wednesday’s close, fell as much as 7.9% in London trading.
Costlier Coffee
Foodmakers are now grappling with soaring coffee prices, which more than doubled over the past year amid bad weather in Brazil and Vietnam, and for cocoa. This presents Nestle with the familiar challenge of passing on costs enough to protect margins without scaring away customers.
Nestle didn’t say how much it might raise prices for brews and chocolate products, though Freixe said coffee prices will increase a bit more than previously expected. What makes Chief Financial Officer Anna Manz optimistic is that these two categories are ones that “consumers tend to really stick with,” she said on a call with analysts.
While existing recipes, such as those for KitKats, won’t change, newer products could include a higher proportion of biscuits or wafers to mitigate high costs for cocoa, Freixe added.
Pyramid-Shaped Cat Food
The CEO has stopped short of announcing any disposals, instead pledging to fix problems from within. He has lowered prices for frozen pizzas in the US to lure back customers who flocked to cheaper brands and he’s investing in the visibility of Nespresso in Europe, which has been underperforming, he said Thursday.
His biggest move so far is separating its water brands, like Perrier and Acqua Panna, into a standalone business, which could be a prelude to a stake sale or partnership. Freixe on Thursday excluded the possibility of an outright sale of the business.
To spur growth, the CEO is doubling down on areas such as longevity, women’s health and the growing trend in weight management. For users of weight-loss drugs it’s investing in high-protein and nutrient-dense solutions for brands such as Boost and Vital Pursuit. It’s also rolling out “big bets” like its pyramid-shaped cat food and Nescafé espresso concentrate, both of which will see more market launches this year.
In pet care, Nestle’s second-biggest business, Freixe sees plenty of opportunities for products like Purina cat food. The dynamic of “less babies, more pets” — driven by trends like urbanization and an aging population — will continue, and “we want to take our fair share of that,” Freixe told analysts.
(Updates with comments from the CEO and CFO)
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