Nestle Q1 2016 earnings hit 126%

Nestle Nigeria’s first quarter 2016 profit results hit 126% Year-on-Year (y/y).
According to the company, key drivers were a strong top line growth and gross margin expansion. A decline in net finance charges also supported improved profitability.
In Q1, gross margin expanded by around 500 basis points (bps) y/y to 49%. Both topline growth and the upward adjustment in gross margin are likely to offset rising distribution costs, mainly due to higher petrol prices. Last month, the federal government raised petrol prices by 70% due to forex constraints.
Nestle’s Q1 2016 results showed a continued recovery on all key line items on the Profit and Loss Account (P&L). While sales of N36.1billion were up 31% y/y, Profit Before Tax (PBT) and Profit After Tax (PAT) grew by much wider margins of 150% y/y and 126% y/y respectively. Sales for Nestle’s Beverage and Food segments were up by 35% y/y and 29% y/y respectively.
Nestle benefited from relatively softer competition as importers continue to struggle to meet forex requirements. In addition to topline growth, a gross margin expansion of 499bps y/y to 49.2% and an -86% y/y decline in net finance charges boosted PBT growth which was up 150% y/y.
Nestle’s low reliance on imported raw materials continues to keep gross margin at healthy levels. Sequentially, PBT and PAT were both up by 3% quarter-on-quarter (q/q) respectively.
Nestle shares went up 28% over the last one month on the back of renewed interests by domestic investors mainly. Nestle shares are trading on a 2016E P/E multiple of 24.0x for 1.3% Earnings per Share (EPS) growth in 2017E.