Silke Koltrowitz

ZURICH, (Reuters) – Nestle Food Group is expecting to record organic sales growth in 2021 of 7.1%, nearly twice the level last year, thanks to strong pet and coffee demand, but higher input costs will begin to affect profitability.

The market will pay attention to the Guidance for 2011, focusing on KitKat and Nescafe makers’ ability to increase prices without threatening volume growth and market share. It will also be examined how the market for petcare and coffee-based food has fared during the crisis.

Any sign that the company may reduce its share in L’Oreal cosmetics group, possibly to finance large acquisitions, will also be headline news.

According to company consensus, organic sales will rise 7.1%, in spite of currency swings, acquisitions, and 5.2% volume increases. Prices are also expected to increase 1.8%.

This forecast suggests a slower pace than the 7.6% rate of growth seen over the previous nine months.

Nestle is expecting to see a slight decline in its trading operating margin due to the rising cost of labour and energy. It was 16.9% in 2020.

Peer Unilever (NYSE 🙂 warned last week of a loss in profitability due to its failure to raise prices sufficiently to compensate for higher costs.

Jon Cox, Kepler Cheuvreux analyst at Kepler Cheuvreux said that Unilever’s margin warning clearly rattled markets.

Nestle, however, is in higher premium categories than I think and should be in a better position to offset inflationary pressures by pricing in 2022.”

Martin Deboo from Jefferies downgraded Nestle to “underperform,” last month. He cited tough competitors in petcare, coffee, and margin headwinds for this year.

Nestle shares have fallen 8% in the first quarter of this year. According to Refinitiv data they are currently trading at 24 times future earnings. That is significantly higher than Unilever or Danone.

Nestle announced in December that it had reduced its L’Oreal share to 20.1%, and it also launched a program for share buybacks worth 20 billion Swiss francs ($21.65 trillion). Nestle also acquired Orgain, a major stake in the protein powder manufacturer Orgain.

($1 = 0.9238 Swiss francs)