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

Logo is pictured on the Nestle research center in Lausanne

By Silke Koltrowitz

ZURICH (Reuters) – Nestle <NESN.S> raised its guidance for 2020 organic sales growth to around 3% and reaffirmed its ambition to return to mid-single digit growth after strong demand for pet food, coffee and health products boosted quarterly growth.

Chief Executive Mark Schneider told analysts on a call the new full-year guidance was “cautious” after the world’s biggest food group posted organic growth of 4.9% in the third quarter.

“It’s very hard to predict where exactly COVID is going to turn next and what the measures are going to be in key markets for us,” he said. “With COVID around us, you will see rollercoaster movements here in the numbers going forward.”

Nestle had previously expected organic growth of 2-3% for this year.

Schneider said the company was working hard to reach its mid-term target of mid-single digit organic growth, initially set for this year. “I feel good about our ability to be there in a reasonable amount of time.”

The maker of Nescafe coffee and Kitkat chocolate has weathered the 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 <DANO.PA> 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 <ULVR.L> is due to release a trading statement on Thursday.


Shares in Nestle, up 2.5% so far this year, was down 0.2% at 1436 GMT, outperforming the food sector index <.SX3P> which was 1.1% weaker.

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 outside home and on the go – about 15% of Nestle’s sales – fell 26.4% in the third quarter, Nestle said.

“The trend towards more in-home consumption, which favours us, I think, is here to stay, and that bodes well for next year,” Schneider said.

To boost growth, Nestle wants to keep developing its portfolio, notably expanding its health science business recently bolstered by the $2 billion Aimmune Therapeutics acquisition. It intends to double the unit’s sales to 4 billion Swiss francs ($4.42 billion) by 2021/2022 versus 2017 levels.

It has been ditching underperformers and put North American waters and its Chinese Yinlu peanut milk brand under strategic review.

While the Americas region posted the strongest growth rate, Asia was only slightly positive dragged down by China, where Nestle’s out-of-home business, infant nutrition, Yinlu and its sweets brand Hsu Fu Chi are struggling.

(Reporting by Silke Koltrowitz, editing by John Revill and Emelia Sithole-Matarise)