EUR 850.00 For Business Accounts Only

Morningstar | Nestle Reports in Line First-Quarter Sales, Confirms Guidance; Shares Slightly Rich

Nestle reported first-quarter sales with organic growth of 3.4% (versus 3.5% organic growth in our model for the year) in line with our full-year expectations. Management confirmed its fiscal 2019 guidance for continued improvement in organic sales growth and underlying trading operating margin toward 2020 targets of 17.5%-18.5%. Our full-year expectations are close to consensus (64 basis points margin improvement and 3.5% organic growth versus 60 basis points and 3.6% for the consensus, respectively). Given this in line set of results, we maintain our wide moat rating and CHF 88 ($88 per ADR) fair value estimate. Shares trade in 2-star territory.

Geographically, Nestle continues to reap the benefits of its high exposure in emerging markets (42% of sales), with robust organic growth (6.3%) and pricing (2.6%) offsetting an unexciting performance of its developed markets businesses (1% volume, 0.2% pricing). Zone EMENA and Americas were up 2.0% and 4.0%, respectively, with strong pricing in the latter (2.5%) driven by PetCare and Nestle professional. In North America, higher pricing due to packaging and distribution cost inflation pass through supported a positive organic growth. Latin America had mid-single-digit organic growth with Brazil driving performance. In Zone AOA, organic growth was 3.3%, with both China and Southeast Asia up midsingle digits.

Pricing was strong in Waters (negative 2.3% organic growth, 4.3% pricing) while Other Businesses sales were driven by RIG (6.8% organic growth, 0.3% pricing), with Nespresso and Health Science growing healthily at mid-single-digit rates and Nestle Skin Health at double-digit rates, confirming recovery since reorganization. Category-wise, Nutrition and Health Science, Milk Products and Ice Cream, and PetCare were standouts with 6.2%, 4.2%, and 5.5%, organic growth, respectively, with the latter supported by e-commerce and dairy driven by higher pricing in Brazil and growth in plant-based offerings.