Nestlé shares suffered this week after it posted weaker than expected sales amid a drop in volumes, as inflation hit demand.

The world’s largest food group posted full-year organic growth of 7.2% in 2023, with pricing up 7.5% and sales volumes down 0.3%. Analysts had expected growth of 7.4% ahead of the results.

Nestlé stressed sales volumes had turned positive in both the fourth quarter and the second half, supported by the benefits from portfolio optimisation, improving customer service levels and increased brand support.

CEO Mark Schneider said its overall sales volumes suffered from “unprecedented inflation over the last two years” which had “increased pressure on many consumers and impacted demand for food and beverage products”.

However, total reported sales for the year fell 1.5% to CHF93bn as foreign exchange decreased sales by 7.8% and net divestitures had a negative impact of 0.9%.

Nestlé said organic sales growth was seen across most geographies and categories, with pricing and negative volumes in developed markets leading to organic growth of 6.4%, and price and volume growth in emerging markets driving growth of 8.4%. By product category, Purina Petcare was the largest contributor to growth along with high single-digit growth from coffee, infant nutrition and confectionery.

The group’s underlying trading operating profit margin was 17.3%, increasing by 20 basis points on a reported basis and by 40 basis points in constant currency. Net profit increased by 20.9% to CHF11.2bn as net profit margin increased by 230 basis points to 12.1%.

Nestlé said it expects organic sales growth to slow to around 4% next year as inflation eases, which would see a moderate increase in the underlying trading operating profit margin. Growth will remain at mid single-digit in 2025, it forecast.

Bernstein analysts said the update was “not the kind of reassuring Nestlé results investors are used to”. Meanwhile, Barclays said the key question after the “disappointing” results was: “How does Nestlé recover organic growth, and has it taken too much pricing? The acid test will be improving market share momentum and innovation to drive growth in 2024.”

Jefferies said the fourth quarter miss in organic growth due to volume shortfalls was a “concern”, particularly because its pet care division experienced “the last big quarter of growth… before the price hikes are lapped, and volumes we fear fail to rebound on faltering demand”.

Nestlé shares dropped 4.7% to CHF94.45 on Thursday – their lowest level since March 2020 and the global onset of the Covid pandemic.

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