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Nestlé Limits Margin Squeeze And Raises Growth Outlook

Nestlé raised its full-year sales growth forecast to 7-8% on Thursday and trimmed its margin guidance after cost inflation hurt the world's biggest food group less than expected and price increases boosted first-half organic sales growth.

Consumer goods businesses are facing soaring input costs for raw materials, energy and transportation, and though many consumers so far seem to accept the resulting price increases, delays in implementing them are squeezing companies' margins.

Rivals Forecasts 

Rivals Reckitt Benckiser, Unilever and Danone raised their full-year revenue forecasts this week after steep price increases helped them to beat second-quarter sales expectations.

Nestlé, which makes KitKat chocolate bars Maggi soups among others, said its underlying trading operating profit (UTOP) margin dropped to 16.9% in the first half of 2022 from 17.4% a year earlier.

The company cited the lag before prices could be increased and the need for price rises to be balanced so consumers do not buy less or opt for cheaper brands.

"We limited the impact of unprecedented inflationary pressures and supply chain constraints on our margin development through disciplined cost control and operational efficiencies," Mark Schneider, chief executive, said in a statement, adding that price increases had been implemented "in a responsible manner".

Net Profit Falls 

Net profit fell 11.7% to 5.2 billion Swiss francs, hit by higher impairments and taxes ($5.42 billion), missing an average estimate of 5.815 billion Swiss francs in a company-compiled poll of analysts.

Bernstein analyst Bruno Monteyne said the new margin guidance of about 17%, versus 17.0-17.5% previously, was "still a very strong margin, with a much smaller year-on-year margin decline than most of its European peers".

In the second quarter, underlying sales growth accelerated to 8.7% from 7.6% in the first three months of the year, beating forecasts thanks to price increases of 7.7% and strong demand for petcare products and coffee, Nestle said.

Nestlé  shares, down almost 8% this year, were indicated 1.2% higher based on pre-market indications.

Read More: Nestlé Fends Off Cost Inflation, Helped By Higher Prices

News by Reuters, edited by Donna Ahern, Checkout. For more A-brands stories, click here. Click subscribe to sign up for the Checkout print edition.

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