Nestlé, which was targeted last month by Daniel Loeb, the US activist investor, failed to deliver an expected rebound in sales growth in the first half of 2017, increasing the pressure on Mark Schneider, the chief executive, ahead of a strategy revamp this year
The world’s largest food and drinks company, whose brands include Perrier water and KitKat bars, reported “organic”, or like-for-like, sales growth of just 2.3 per cent in the six months to June.
That was the same as in the first quarter and significantly below the 2.7 per cent forecast by analysts. “Organic growth in the first half did not fully meet our expectations,” Mr. Schneider said.
In western Europe sales volumes declined in the first half, which Nestlé blamed on price increases for Nescafe coffee. But François-Xavier Roger, chief financial officer, told journalists that temperatures in June had also risen to levels where “consumers don’t feel like drinking coffee or eating pizzas”.
Nestlé expected the declines in western Europe to be temporary. Nevertheless, the Swiss group warned organic growth for the full year was likely to be in the “lower half” of the 2-4 per cent range Mr. Schneider set in February.
Trading operating profit fell 2.5 per cent to a lower than expected SFr6.4bn in the first half, partly as a result of restructuring costs. In early European trading, the shares were down 1 per cent at SFr81.50.
Nestlé’s business model, based on relentless sales growth and leveraging its size, has come under pressure in a world of sluggish economic growth and deflation, as well as consumer shifts towards healthier products and away from “big food”.
Deflationary forces had retreated recently in western economies but volatile commodity prices were still making it hard to pass on price increases, Mr. Roger said on Thursday.
Last month Mr. Loeb called for a shake up of Nestlé’s “old ways” after revealing his Third Point fund had acquired a 1.3 per cent stake in the company, worth about $3.5bn. Despite its size, Nestlé has also had to react to pressures unleashed in the consumer goods sector by Kraft Heinz’s failed $143bn takeover approach earlier this year for Unilever, its Anglo-Dutch rival.
However, many of Mr. Loeb’s demands are already being implemented or are under consideration at Nestlé. As part of an active portfolio management programme, it last month pulled out of the US confectionery market, where it had failed to build profits or market share. Just days after Mr. Loeb unveiled his stake, Nestlé announced a share buyback programme worth up to SFr20bn, which it said had been long planned.
Mr. Schneider, who joined Nestlé in January from Germany’s Fresenius healthcare group, is expected to unveil further steps at an investor conference in September. These could include formal profit margin targets, for which support is growing among top Nestlé executives, although their intention would be to guide investors on what would be achievable — and not to encourage cuts in investment and marketing spending.
Nestlé needed to convince investors “that it will be able to accelerate growth and deliver on profitability”, said Jean-Philippe Bertschy, an analyst at Vontobel. “The sense of urgency is more than ever.”
However, Nestlé executives argue there is no need to abandon completely its traditional business model. They still see significant growth opportunities in product markets such as coffee, pet foods, and bottled waters — all of which grew in the first half of 2017 at rates at least 50 per cent higher than the Nestlé average.
--Financial Times
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