Food giants Nestle and Unilever announced first-quarter earnings Thursday. While both reported sales growth — 2.8% for Nestle and 3.4% for Unilever — each company is seeing that growth hampered by weak pricing, according to The Wall Street Journal.
Squeezed by online competition, weak inflation and price cutting from discount retailers, Unilever hiked prices by only 0.1% during the quarter and Nestle's price growth was held to 0.2%. Analysts with Bernstein told the WSJ that those rates were the lowest since 2010 for Unilever and since 2000 for Nestle.
Nestle posted 1.2% sales growth in the U.S. market, which is its largest, according to a company release. The gains came mainly from a 4.7% organic growth boost in pet care products, including its Purina and Friskies brands, with the sector accounting for 27% of the Swiss company's total U.S. sales during the first quarter, according to Live Mint. Coffee Mate also showed growth, while Nestle's U.S. candy business, sold last month to Ferraro, dragged on profits during the first quarter.
Nestle's management has faced increasing pressure from activist investor Daniel Loeb and his Third Point hedge fund, which bought about 1.25% of the company last year. He has been critical of its direction and has pushed for changes to maximize profits and shareholder returns.
While Loeb may have found positives in the first-quarter earnings report and from the recent $2.8-billion divestiture of Nestle's U.S. confectionery business, if the recent past is any indication, he's likely to press for further changes. Nestle has been turning its attention to other segments, recently purchasing or taking stakes in high-end coffee companies such as Blue Bottle and Chameleon Cold-Brew.
These results also drive home the importance of the pet food segment to today's CPG companies. As pets are increasingly being seen as members of the family and owners are feeding them premium products, the market is booming and pet food and snacks is a $30-billion industry.
Nestle isn't the only company that started out in people food and then saw the lucrative possibilities of pet care. J.M. Smucker has invested heavily in the segment, announcing its $1.7-billion purchase of Ainsworth Pet Nutrition — maker of Nutrish — earlier this month. The company known for its namesake jellies and jams also owns Big Heart Pet Brands, Milk-Bone dog treats, and Meow Mix cat food.
Currently, the largest division of Mars Inc., once dominated by candies, is pet care. The company owns pet food brands such as Whiskas and Pedigree, as well as pet clinics and DNA-testing facilities. And General Mills is now getting into the segment with its pending $8-billion purchase of Blue Buffalo Pet Products announced earlier this year.
As for Unilever, the company is trying to ease shareholder concerns over falling stock prices, which have dropped about 15% since last October. One method is the $7.4-billion share buyback plan the company announced this week. CEO Paul Polman has also reportedly developed a plan to avoid another takeover bid like last year's $143-billion overture from Kraft Heinz, which Unilever declined.
First-quarter results for Netherlands-based Unilever showed gains in indulgent ice cream products after Ben & Jerry's non-dairy products debuted in the U.S. and Breyers delights lower-calorie, high-protein brand launched in 11 countries.
Other positive performers during the first quarter were Unilever's recently purchased Pukka Herbs organic herbal tea business, which complements its Tazo tea acquisition from Starbucks last year and its Pure Leaf and PG Tips global tea brands. Unilever's Knorr Selects side dishes also did well in the U.S. market, the company reported, and its Hellmann's mayonnaise brand debuted avocado and sunflower oil varieties.