Nestlé snips growth forecast to 5%

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Copy of br nestle (39975784) Bloomberg A shop assistant arranges packets of Maggi instant noodles, produced by Nestle India, at a store in Mumbai. The Swiss multinational forecast growth near the low end of its target this year after reporting the smallest annual sales advance in four years. Photo: Bloomberg

Matthew Boyle London

Nestlé expected growth near the low end of its target this year, the largest food company said yesterday after reporting the smallest annual sales advance in four years amid sluggish spending and lower prices in developed markets.

Revenue would rise about 5 percent this year excluding acquisitions, disposals and currency shifts, with the second half stronger than the first, the Swiss maker of KitKat and Nescafé said. That is after the company met analysts’ estimates with a 4.6 percent advance on the same basis last year, the weakest expansion since a 4.1 percent rise in 2009.

The 5 percent forecast was below estimates for growth of about 5.3 percent, based on a company-compiled consensus.

After a challenging 2013, this year “will likely be the same”, chief executive Paul Bulcke said in a statement, pointing to weakness in Europe and North America. The overall performance would be “similar to last year”, he said.

The sales forecast was “a little underwhelming” and “not the Nestlé Model”, Exane BNP Paribas analyst Jeff Stent said in a statement, referring to the food maker’s goal for average 5 percent to 6 percent organic growth over the long-term.

The company said that it was keeping those targets, although this year organic sales growth would be near the low end of the range.

The average over the past 10 years has been 6.1 percent.

Nestlé fell as much as 2.2 percent and was down 1.6 percent at Sf66 (R805) as of 11:50am in Zurich trading yesterday. The stock is little changed this year.

Speaking at a press conference in Vevey, Bulcke said Nestlé had no plan to further reduce its stake in L’Oreal after this week’s agreement to sell part of its holding in the cosmetics maker for e6 billion (R89.6bn). A share buy-back to be funded from the proceeds would be announced “soon”, the company said.

Analysts including Exane’s Eamonn Ferry expect Nestlé to gradually sell its entire L’Oreal stake and make acquisitions.

Europe, which Nestlé called a “no-growth environment”, was not getting any better, Bulcke said at the press conference.

His comments were at odds with recent signs of recovery in the region. The euro zone economy has expanded for three quarters in a row.

Nestlé experienced “material negative pricing” in Europe from passing on lower ingredient costs to consumers buying its Mövenpick ice cream and pet food. So-called trading operating margins in the region narrowed by 0.4 percentage points to 15 percent on the back of a 0.8 percent boost in sales.

Profit margins also contracted in the Americas, narrowing by 0.5 percentage points to 18.2 percent amid what Bulcke described as a “price war” in US bottled water.

Sales in the region rose 5.3 percent as Nestlé boosted marketing for its DiGiorno frozen pizzas and new Butterfinger peanut-butter cups.

In Asia, Oceania and Africa, sales rose 5.6 percent.

Nestlé’s sales in emerging markets last year rose 9.3 percent, faster than the 8.8 percent clip at the nine-month mark, fuelled by “strong” results in Africa, the Middle East and Indonesia.

Also helping results was the company’s nutrition unit, with an 8.2 percent sales uptick. Infant nutrition sales rose by more than 10 percent in Asia, Africa and Brazil. – Bloomberg


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