By Carol Ryan 

For household staples companies, it now makes a big difference whether your brands replenish people's pantries or their cleaning supplies. Over time, Nestlé is betting that health concerns take a different turn.

The Swiss food giant is the third large consumer-goods company to up its full-year guidance this week. It said on Wednesday that sales increased by 4.9% in the three months through September, stripping out changes in exchange rates and the portfolio -- its strongest quarterly growth rate in six years. Even so, Nestlé expects sales for the full year to grow at a modest 3%. Back in July, the company expected growth to come in around 2% to 3%.

For now, it is significantly lagging both Reckitt Benckiser and Procter & Gamble, which reported quarterly growth of 13.3% and 9% respectively and raised their guidance on Tuesday. The obvious reason is that the Nespresso coffee owner doesn't sell cleaning or disinfectant brands, which are flying off supermarket shelves.

The impact of Covid-19 on food companies is mixed. Nestlé's water brands -- usually consumed in restaurants or on the go -- are suffering. So are candy snacks like Milkybar, which consumers tend to buy when they are out and about. Sales of its "out of home" products, which generate up to 15% of revenue, were down 26% in the third quarter and will be a drag for some time.

There are compensating trends: As people spend more time at home, Nestlé's coffee and petcare brands are benefiting, while sales of dairy and ice-cream products grew by 10.6% in the quarter, according to Barclays estimates. Previously unfashionable in certain markets, consumers are buying more fortified milk products to help their immune systems during the pandemic.

Nestlé's ambitions in food science could provide a boost over time as people do more to protect their health and avoid infection. Thanks to higher demand for nutrition supplements, sales in its health-science division are growing at a double-digit clip. The company has a new target for them to reach around $4.4 billion over the next year or so -- double the 2017 level -- and has done four deals in the space this year. Its purchase of Aimmune Therapeutics closed last week in a deal that valued the biopharmaceutical food allergy business at $2.6 billion.

Demand for cleaning products won't remain sky-high forever, although consumers will probably be preoccupied with hygiene long after the worst of the pandemic has passed. Compared with the roughly 15% share-price gains at P&G and Reckitt Benckiser this year, Nestle's 10% increase in dollar terms has been more muted. But it may also benefit from a longer-term health kick.

Write to Carol Ryan at carol.ryan@wsj.com

 

(END) Dow Jones Newswires

October 21, 2020 09:35 ET (13:35 GMT)

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