Retail

Nestle shrugs off Covid-19 impact thanks to pet food and health nutrition

Key Points
  • Nestle saw organic sales grow by 4.9% in the third quarter, following 1.3% growth in Q2.
  • It raised full-year guidance to around 3% organic growth.
  • The Americas, pet food and health science were drivers.
  • Nestle shares have risen 1.6%.
A pedestrian passes a Nestle SA logo at the Nescafe factory, operated by Nestle SA, in Tutbury, U.K., on Thursday, Aug. 23, 2018.
Simon Dawson | Bloomberg | Getty Images

Nestle raised its guidance for 2020 organic sales growth to around 3% after beating third-quarter expectations on Wednesday with 4.9% growth driven by strong demand for pet food, coffee and health products.

The world's biggest food group has weathered the Covid-19 pandemic better than some peers as its focus on high-growth categories helped offset a slump in food sales to restaurants and cafes.

In contrast, French peer Danone announced an extensive review this week that could lead to disposals after its like-for-like sales fell 2.5% in the third quarter.

Unilever is due to release a trading statement on Thursday.

Shares in Nestle, up 2.5% so far this year, rose 1.6% at 0706 GMT.

Kepler Cheuvreux analyst Jon Cox said Nestle remained his preferred pick in food, while Vontobel's Jean-Philippe Bertschy called it a "must-have stock", set to emerge a winner from the pandemic.

Demand for food and drinks consumed at home remained strong during lockdowns, while sales of products consumed out of home and on the go - about

15% of Nestle's sales - fell 26.4% in the third quarter, the maker of Nescafe coffee and KitKat chocolate said in a statement.

Nestle said it wanted it keep developing its portfolio, notably expanding its health science business recently bolstered by the $2 billion Aimmune Therapeutics acquisition.

For the first nine months of the year, Nestle's organic sales grew by 3.5%, beating the 2.8% in a company-supplied consensus of analysts' estimates.

Nestle had previously expected organic growth of 2-3% for this year and some analysts said the increase in forecasts was cautious as 2% growth in the final quarter would be enough to achieve it. Nestle confirmed it wanted to improve its margin.  

Sales in the Americas recorded the strongest growth rate in the nine-month period, while Asia was only slightly positive.

The important Chinese market, where Nestle's out-of-home business, its Yinlu peanut milk brand and infant nutrition division have been struggling, returned to positive growth in the third quarter, the company said.

Group sales in Swiss francs fell 9.4% to 61.9 billion Swiss francs  ($68.33 billion) hit by the strong Swiss franc and divestitures.

Under Chief Executive Mark Schneider, Nestle has divested its skin health unit, Herta meat and U.S. ice cream brands and put North American waters and Yinlu under strategic review.