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NESTLE NIGERIA PLC 9M'23 Earnings - Q3 performance insufficient to stem 9M loss

Despite sustained inflation of over 20%, Nestle Nigeria posted impressive Q3 top-line gains. In Q3’23, revenue grew by 21% y/y to come in at ₦134.8 billion. This higher topline performance is attributed to higher product prices in both its food and beverage segments. On the back of this solid topline growth and slower growth in cost of sales (up 11% y/y to ₦82 billion), gross margin rose 6ppts to 39% in Q3’23. This pushed gross profit to ₦52.8 billion, reflecting a strong increase of 42.5% y/y. These positive gains supported Nestle’s 9M’23 revenue and gross profit to come in higher at 19% and 37% y/y respectively, bringing them to ₦396.6 billion and ₦160.2 billion apiece.

FX losses drag bottom line
However, similar to Q2 performance, it was a sad tale for bottom-line, as FX losses drove finance costs 9x higher in Q3 to ₦18.8 billion, ultimately dragging PAT. We, however, like to note that the pace of growth for these cost items were slower in Q3 than in Q2; thus, PAT for Q3 came in at ₦6.9 billion (down 44.4% y/y). However, this did little to abate losses in 9M’23 (9M’23 loss of ₦43.1 billion vs 9M’22 profit of ₦40.2 billion), given the magnitude of finance costs experienced in Q2 (₦121.7 billion). 

Outlook: TP estimated at ₦1,145.89
Our full year expectation for revenue comes in at ₦504.5 billion (up 13% y/y), driven by higher product prices. Also, we expect sustained higher gross margins y/y to keep EBIT elevated; thus, we project EBIT to come in at ₦104.4 billion (up 20% y/y). Further down the income statement, we expect FX losses to drop its growth pace in Q4’23 to bring FY’23 finance costs to ₦170 billion. Despite the fall in pace in Q4’23, we still expect FY’23 bottom-line to stay in the negative territory due to the magnitude of finance costs. That said, bottom-line is expected to print at a loss of ₦36.1 billion (FY’22: ₦49 billion profit).