Nestlé’s guidance towards improved profitability this year did little to ease investor concerns around a sharp underperformance of fourth quarter sales volumes, as well as the impact of ongoing price hikes.

The world’s largest food group posted annual organic growth of 8.3% in the year. However, this was almost wholly driven by price hikes, with volumes growing by just 0.1%.

Most notably, fourth quarter volumes fell 2.6% compared to market expectations of around 0.5%, as the group’s pushing through of price increases had a larger-than-expected effect on shopper behaviours.

The underperformance in volumes was concentrated in North America, where sales volumes were 4.4 percentage points below forecasts due to portfolio optimisation actions, growth moderation in the out-of-home sector and temporary capacity constraints in Waters.

The sales performance was more encouraging elsewhere, as the group gained market share in petfood, coffee and infant nutrition.

That helped total reported sales increase by 8.4% to CHF94.4bn over the year. Net acquisitions had a positive impact of 1.1%, while foreign exchange decreased sales by 0.9%.

Underlying trading operating profit increased by 6.5% to CHF16.1bn during the year. But profit margin decreased by 30 basis points to 17.1% amid “significant” inflation on commodity, packaging, freight and energy costs.

For 2023, the group expects organic sales growth to edge down to between 6% and 8%, and underlying trading operating profit margin to improve to a range of 17% and 17.5%. By 2025, it expects to have stabilised to “sustainable mid-single-digit organic sales growth”, while underlying trading operating profit margin will have improved again to a range of 17.5% to 18.5%.

Jefferies said it expected “a negative reaction and a debate around the [sales volumes] impact of planned optimisation measures and capacity constraints versus negative underlying price elasticity”.

Barlcays added: “CEO Mark Schneider has been clear that pricing needs to continue to increase in 2023, albeit not as steeply as 2022, but there are still pricing gaps that need to be addressed. The question will be what the elasticity impact from this incremental pricing will be.”

“Overall we think the results will be seen as disappointing and Nestlé will need to explain these transitory impacts and reassure that it will not continue to be an ongoing headwind for 2023.”

The market reacted to the news by sending Nestlé shares down 2.3% to CHF108.12 on Thursday. The Swiss group’s shares are now 7.8% down year on year.

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