LONDON - Most of the world’s large companies are junking their profit forecasts and cancelling plans to return money to shareholders. Not Nestlé. The $320 billion maker of Purina pet food and Nescafe coffee on Friday reported a better-than-expected 4.3% increase in organic sales for the first quarter. The bounce may not last, though.

Nestlé’s mix of products and geographies helped Chief Executive Mark Schneider outdo competitors. Though sales of ice cream and on-the-go sweets like Smarties are down, consumers have responded to lockdowns by stockpiling pet food and drinking more coffee at home. Investing in e-commerce capacity also helped. The Swiss group’s online sales grew 29% and now account for more than a tenth of the total.

These efforts would have been wasted if Schneider had been caught out by supply problems. The group largely avoided border delays because 95% of its sales are produced locally. Temporary closures, such as shutting eight plants in India, were mitigated by holding plenty of inventory. Like other companies, Nestlé has been squeezing the working capital it uses for day-to-day operations in recent years. But it has prudently kept inventory steady.

The company’s results beyond Europe and the United States, however, suggest Schneider is not immune from a coronavirus-related slump. Nestlé’s sales in Asia, Oceania and sub-Saharan Africa fell 4.6% on an organic basis. As consumers in Asia engaged in less stockpiling, the decline in developed markets may be even greater when consumers have filled up their cupboards. Closed restaurants, meanwhile, mean demand for S.Pellegrino bottled water remains dry.

Nestlé has plenty of cash to see him through, though. The company had 7.5 billion Swiss francs on its balance sheet at the end of 2019 and generated 12 billion Swiss francs of free cash flow last year. That explains why Schneider is sticking to his plan to return 20 billion Swiss francs to shareholders by 2022, although he has reserved the right of flexibility for big acquisitions, and the company is still paying out a dividend worth 7.7 billion Swiss francs. Shareholders are happy: Nestlé shares are up about 3% so far this year. Still, the company’s top line figures won’t always be this bountiful.

CONTEXT NEWS

- Swiss food group Nestlé on April 24 reported a 4.3% rise in organic sales for the first quarter of 2020, beating the 3% forecast by analysts.

- Total sales for the three months to the end of March fell 6.2% to 20.8 billion Swiss francs ($21.30 billion) mainly due to divestitures of its skin health and U.S. ice-cream business in 2019.

- The $320 billion company’s e-commerce sales grew 29%, exceeding 10% of total sales for the first time.

- Nestlé shares were up 2% a 106.7 Swiss francs by 0830 GMT on April 24.

(Editing by Peter Thal Larsen and Karen Kwok)

© Reuters News 2020