Nestlé’s 2Q earnings fall on higher operating expenses

by FARA AISYAH/ pic by MUHD AMIN NAHARUL

NESTLÉ (M) Bhd stated that higher operating expenses hurt its earnings for the second quarter ended June 30, 2019 (2Q19), with its net profit falling 5.58% year-on-year (YoY) to RM156.89 million.

The multinational fast moving consumer goods group noted that the hike in operating expenses was due to a planned increase in marketing investment, as well as some unfavourable net impact from exchange rates and commodity prices.

Nestlé’s earnings per share for the three months was lower at 66.90 sen from 70.86 sen in 2Q18. It has declared an interim dividend of 70 sen per share to be paid on Oct 10, 2019.

Quarterly revenue increased 2.29% YoY to RM1.34 billion, its exchange filing yesterday noted. Factoring in the divestment of the chilled dairy business on Jan 1, 2019, the number represents a robust 3.4% increase in growth YoY.

“Our growth momentum acceleration in 2Q demonstrates the strength of our domestic business and strong sustained demand for our brands, driven by focused sales execution, attractive innovations, increased marketing support and efforts to capture opportunities during the festive season,” Nestlé CEO Juan Aranols said in a statement yesterday.

The quarterly profitability, while remaining strong, has been impacted by the phasing of its marketing spending, as well as some one-off warehousing expenses in preparation for the factory expansion in Chembong, Negri Sembilan, Aranols added.

This comes on top of higher cost of commodities mitigated by robust hedging strategies in place by the company.

The new products launched in 2Q19 include Nescafé Gold, Maggi Pedas Giler Seafood, Maggi Pedas Giler 2X Ayam Bakar and La Cremeria Summer Berries Yogurt.

Nestlé’s profit for the first half of 2019 (1H19) decreased marginally to RM392.1 million from RM397.38 million in the previous year, due to higher income tax arising from the expiration of investment incentive.

1H revenue increased to RM2.79 billion from RM2.74 billion in 1H18 on the back of domestic sales growing at 4.1% driven by positive offtake for its brands due to robust demand and successful Chinese New Year and Hari Raya festive sales.

Aranols said the group remains confident in its full year performance against a backdrop of global uncertainties and volatility.

“Our fundamentals remain solid and we continue to work hard to maintain the strong endorsement of our brands by the Malaysian consumers. Among many other elements, our plans for (2H) include an exciting stream of new product launches in the market, including our most recent launch, the introduction of the Starbucks at Home range, building on Nestlé’s global coffee alliance with Starbucks,” he stated.

The group will continue to proactively capture efficiencies and savings to invest behind its brands and protect margins to counter rising commodity costs and protect the accessibility to its brands by consumers.