London - Nestle SA reported nine-month sales that missed analysts’ estimates, calling into question the ability of the world’s biggest food maker to meet its annual growth target as the Asian market became more challenging and deflation erodes revenue in Europe.
Revenue rose 4.5 percent, the Vevey, Switzerland-based maker of Gerber baby food said on Thursday. The Nescafe maker is aiming for growth of about 5 percent for this year.
Nestle flagged difficulties in all its major markets. The company is struggling to lift prices in Europe, facing challenging conditions in China and wrestling a decline in its frozen food business in North America. Nestle will probably miss its goal, said Patrik Lang, an analyst at Julius Baer Group Ltd. in Zurich.
“The main problem is Asia, where volume unexpectedly declined,” he said. “Shares are going to be weaker.”
Nestle today reiterated its forecast for organic sales growth, plus an improvement in margins and underlying earnings per share in constant currencies.
“Due to lower growth in high-margin areas, the margin target could also be an issue,” Alain-Sebastian Oberhuber, an analyst at MainFirst Zurich, said in a note.
Unilever, the maker of Magnum ice cream bars, last month said market growth has slowed to less than 2 percent, compared with 4 percent in 2013.
PORTFOLIO REVAMP
The DiGiorno pizza maker has been revamping its portfolio by selling assets to revive sales growth, which reached a four- year low in 2013. Portfolio management is “ongoing”, Nestle, following the sale of the Juicy Juice brand, Nestle said today.
Chief Executive Officer Paul Bulcke spent $5 billion this year to build the dermatology business, acquiring the rest of its Galderma joint venture and rights to drugs from Valeant Pharmaceuticals International. The company also started an 8-billion-franc share buyback programme in August.
Nestle reports organic sales, which excludes acquisitions, divestments and currency swings. Total revenue declined 3.1 percent to 66.2 billion Swiss francs ($70 billion), missing analysts’ estimates for 66.7 billion francs.
The weakness of currencies against the franc stripped 7.5 percentage points from growth. Danone said on Wednesday currency volatility was one of the reasons it’ll be harder to achieve its full-year targets.
China has become one of the Nespresso maker’s largest markets after the acquisitions of Hsu Fu Chi International Ltd and Yinlu Foods Group in 2011.
The stock has climbed 2.5 percent this year, compared with a 3.8 percent drop for Danone and a 1 percent gain for Unilever.
Bloomberg