The most important Swiss share has been weakening for months. The publication of the annual results has hardly provided any new impetus.
Coffee is one of Nestlé’s fastest-growing product categories.
Denis Balibouse / Reuters
Nestlé is the most valuable company in Switzerland – but its share price has been weakening for several quarters. Investors were therefore eagerly awaiting the publication of the annual results on Thursday.
But anyone who had hoped for a positive surprise was disappointed. The Nestlé Group performed solidly in the 2023 financial year and delivered an outlook in line with expectations. But there was hardly any new impetus. Nestlé shares fell 4 percent at the start of trading on Thursday.
Burdensome Inflation
The inflation that began in 2022 had put pressure on Nestlé’s business: sales volumes fell due to customer reluctance and the profit margin fell. In the last quarter of 2023, Nestlé at least managed to return to volume growth, as the group announced. The operating profit margin also improved slightly again in 2023, from 17.1 to 17.3 percent of sales. The numbers were in line with analysts’ expectations.
This also applies to the outlook. 2024 is likely to be a kind of transition year for Nestlé before the world‘s largest food company is expected to fully regain its old operational strength in 2025. The management around CEO Mark Schneider expects an operating profit margin of 17.5 to 18.5 percent and organic sales growth in the mid-single-digit percentage range for 2025.
Nestlé certainly managed to grow in the 2023 financial year. However, sales increased solely because of sharp price increases with which the company passed on the increased costs to customers. At the annual press conference, CEO Schneider spoke of an extraordinary environment. The industrialized countries have seen the strongest increases in food prices since the 1970s. Consumers therefore switched to cheaper products. As a result, Nestlé’s sales volumes fell slightly over the year.
In addition, the strong Swiss franc thwarted Nestlé’s plans. Calculated in local currencies, the company’s sales, which operate in almost every country in the world, increased significantly, but after conversion into Swiss francs there was nothing left. Published group sales fell slightly to 93 billion francs (–1.5 percent).
Coffee and animal feed dominate growth
The animal feed and coffee categories once again grew the most in 2023. They are now clearly the Nestlé Group’s two most important product categories. However, the Health Science division performed below average. Nestlé had delivery difficulties with vitamin products in the second half of the year due to IT problems. Analysts say Nestlé needs to improve performance in this area. Schneider wants to have overcome the problems by spring. Nevertheless, the analysts at Bank Vontobel commented: “A year to forget.”
The bottom line, however, is that Nestlé remains an enviably profitable company. The net profit for the 2023 financial year was 11.2 billion francs. Shareholders will benefit from the twenty-ninth dividend increase in a row; management is requesting an increase in the distribution to 3 francs per share.
When asked, Schneider explained that Nestlé management was also “not happy” with the current development of the share price. However, they have not let up in their efforts to invest in the long-term success of the company – for example by focusing on high-growth brands, sharpening the product portfolio and more marketing activities.
Nestlé lost value during the inflation phase
Share price in francs