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Nestle Nigeria Plc Q1'24 Earnings Release - Topline surge unable to mitigate headwinds

"Revenue growth driven by higher pricing
In Q1’24, Nestle reported substantial revenue growth in its food and beverage segments, amounting to ₦117 billion (+44% y/y), and ₦66.5 billion (+42% y/y), respectively. This growth was primarily driven by elevated pricing strategies within both segments, supported by ongoing efforts in optimizing the product portfolio. Consequently, the company's total revenue surged by 43% y/y to reach ₦183.5 billion for the period."                        

Margins shrink on cost pressures 
On the cost end, a faster growth in cost of sales (+76% y/y) to ₦134.4 billion, led to a decline in gross margin by 13ppts to 27%. As a result, gross profit declined 5% y/y to ₦49.1 billion. On the operating end, OPEX expanded by 22% y/y to ₦28 billion, driven by increased factory overhead (+94% y/y). In light of this, EBIT margin declined by 11 ppts y/y to 11%, leading to a 27% y/y decrease in operating profit to ₦28.7 billion."                        

Outlook
For FY’24, we now project revenue to print at ₦718.3 billion (+31% y/y), to be driven by price increases. On the operating end, we expect operating profit to come in at ₦89.6 billion, down 28% y/y (prev: ₦656.5 billion), as we see cost pressures limiting EBIT growth. In addition, we project finance costs to come in at ₦260.2 billion (up 11% y/y), as we envisage that the currency volatility will keep finance costs elevated. All in, Nestle’s bottom-line is projected to come in at a loss of ₦106.0 billion (Prev: ₦43.8 billion loss). Thus, we have revised our TP slighter lower to ₦998.80."