Nestle more upbeat than rivals as pet lovers prop up sales

By Silke Koltrowitz

ZURICH (Reuters) – Nestle <NESN.S> struck a more optimistic note than peers on Thursday, forecasting 2-3% underlying sales growth this year as demand for high-end pet food and health products helped it eke out growth in the second quarter.

Rivals Danone <DANO.PA> and Unilever <UNA.AS> <ULVR.L> posted a fall in quarterly sales and gave no outlook for the year because of the novel coronavirus.

The world’s largest food manufacturer’s previous guidance for 2020 sales growth “above 3.5%” did not include the impact of the COVID-19 crisis, Chief Executive Mark Schneider told Reuters in a telephone interview.

“We now have a much better understanding of how COVID-19 affects our business,” Schneider said. He added that Nestle, known for brands including Nespresso coffee and Purina pet food, had wanted to provide stability to investors.

Packaged food companies have weathered the crisis better than other industries as consumers bought coffee, pasta, pet food and infant formula in bulk during COVID-related lockdowns.

Nestle’s organic sales growth, which excludes currency swings and acquisitions, eased to 1.3% in the three months to June, from 4.3% in the first quarter, as the effect of stockpiling waned.

Schneider said pet care had outperformed thanks to strong online sales, and coffee consumption at home – which Nestle strengthened recently thanks to its partnership with Starbucks <SBUX.O> – was resilient.

Health products like vitamin pills also got a boost from COVID-19 worries, Schneider said.

He said business in China, the first country to be hit by the novel coronavirus, was on the mend and lockdown-related production difficulties in India were over.

Analysts applauded the better-than-expected first-half sales growth and improved margin of 17.4%. Net profit also beat expectations at 5.9 billion Swiss francs ($6.46 billion).

“A strong result and confident outlook in the circumstances that looks set to preserve Nestle’s premium rating and reputation,” Jefferies analysts said in a note.

Shares, which have risen over 5% so far this year, were up 0.5% at 0934 GMT, outperforming a slightly weaker sector index <.SX3P>.

Nestle said the overhaul of its business toward high-margin foods such as plant-based burgers remained on track. As part of the shift, it has put underperforming North American water brands and Chinese peanut milk Yinlu up for sale and said both reviews should be completed in early 2021.

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