Onome Amuge
Nestlé Nigeria, one of the country’s leading food and beverage companies, saw its third-quarter earnings impacted by ongoing cost pressures and foreign exchange fluctuations, revealing potential short-term drawbacks, as shown in its unaudited financial results for the third quarter of 2024.
Based on these factors, the company reported a loss after tax of N7.36 billion in the quarter under review, in contrast to the profit after tax of N6.91 billion recorded in the corresponding period in 2023.
In a similar trajectory, Nestlé Nigeria pre-tax loss reached N2.86 billion in the third quarter of 2024, a stark contrast to the pre-tax profit of N12.46 billion recorded in the same period in 2023.
The loss was further exacerbated by an 18.9 percent year-on-year increase in tax expenses to N4.50 billion.
An in-depth analysis of pricing trends showed that Nestlé Nigeria implemented an average price hike of approximately 31.3 percent across its product portfolio, relative to the previous quarter.
Nestlé’s gross margin declined by 860 basis points year-on-year, settling at 30.6 percent in Q3’24 against 39.2 percent in the corresponding quarter of 2023.
This contraction resulted from cost pressures, which increased by 118.7 percent year-on-year in the period. Consistent with previous quarters, these high costs were primarily driven by inflationary pressures, including steep increases in raw material expenses which rose 114.9 percent y/y and overhead costs, up 73.0 percent y/y.
Nestlé also faced a 176.1 percent year-on-year increase in net finance costs, reaching N50.62 billion in the quarter under review. This growth was primarily attributed to the substantial rise in finance costs which rose 171.5 percent y/y during the period.
Business a.m. observed that Nestlé’s finance costs were heavily influenced by two key factors: a 95.0 percent year-on-year growth in interest expenses on financial liabilities and a 140.3 percent increase in net foreign exchange loss, reaching N21.58 billion.
These increases were largely attributed to the current environment of elevated interest rates and the weakening of the naira against other major currencies.
Nestlé Nigeria Plc’s standalone loss per share stood at N9.28 in the third quarter of 2024, a significant decrease compared to the earnings per share of N8.72 recorded in the same period in 2023.
This decline was primarily driven by a sharp increase in the cost of sales (118.7% y/y) and a substantial growth in net finance costs (176.1% y/y).
The cumulative impact of these losses resulted in a significant increase in Nestlé Nigeria Plc’s loss per share to N232.47 in the first nine months of 2024, a marked deterioration from the N54.33 loss per share recorded in the same period in 2023.
On a positive note, the company reported a 91.6 percent year-over-year revenue growth in the third quarter of 2024, driven by significant expansions in both the Food and Beverages segments.
Nestlé’s revenue also exhibited a quarter-on-quarter growth of 15.6 percent, fueled by growth in both the Food (+13.9% q/q) and Beverage (+18.6% q/q) segments.
The strong performance was attributed to a combination of factors, including favourable volume growth, higher prices, and new product launches.
In response to Nestlé’s financial performance, analysts at Cordros Securities highlighted the fact that despite the company’s strong revenue growth, persistent cost pressures and adverse foreign exchange conditions continue to adversely impact Nestlé’s earnings, creating potential setbacks in the near future.
However, the analysts also noted that Nestlé’s third-quarter loss showed a substantial improvement compared to the previous two quarters, indicating a gradual recovery despite the ongoing challenges faced by the company.
“Given NESTLE’s strong market position, strategic pricing, and commitment to product innovation, we believe there is room for continued revenue growth over the rest of the year, even with cost pressures and currency depreciation as persistent headwinds to profitability,” they stated.
