Zurich - Nestle cut its full-year forecast after the world’s biggest food company’s nine-month revenue rose at the weakest pace in more than a decade, hurt by slowing growth in emerging markets and deflation in Europe and North America.
Revenue will gain about 3.5 percent on an organic basis in 2016, the Vevey, Switzerland-based maker of Nespresso coffee said in a statement on Thursday, abandoning a goal for growth similar to last year’s 4.2 percent. Sales gained 3.3 percent on that basis in the first nine months of the year, missing analysts’ estimates. The stock fell as much as 2 percent in Zurich.
For several years Nestle and rival consumer-goods makers like Unilever and Danone have grappled with deflation across Europe that’s crimped their ability to raise prices. They’re now facing the opposite situation in emerging markets as rising raw material costs have forced them to hike prices of their goods in countries such as Brazil, repelling shoppers. The volatile markets will heap pressure on Nestle’s incoming Chief Executive Officer Ulf Mark Schneider.
“Pricing is one of the biggest problems,” said Alain Oberhuber, an analyst at MainFirst Bank AG. “The problem presents itself in Europe, in Brazil, in the UK. Everything is softer, and they don’t seem to expects things to get much better.”
As Nestle raised prices by 1.3 percent in the third quarter, volume growth slowed to 1.9 percent from 2.7 percent in the second quarter. Price increases in emerging markets have also been backfiring at Unilever, which last week reported its first drop in quarterly shipments since 2014.
The KitKat maker’s chocolate business was one of the worst performers in the nine months, with shipments dropping 1.4 percent.
“Confectionery is weak as Nestle has a slow ramp-up of innovation in confectionery and a lot of competition,” MainFirst’s Oberhuber said.
This week, Danone announced its slowest third-quarter sales growth in a decade and Reckitt Benckiser Group narrowed its revenue growth outlook to the bottom of its forecast on waning demand in Russia.
Nestle’s defines organic sales growth as the increase in revenue excluding acquisitions, divestments and currency shifts.
BLOOMBERG