Bloomberg News

Nestle Says 2013 Revenue Growth Will Be at Low End of Forecast

April 18, 2013

Nestle Reports Slowest First-Quarter Sales Growth in Four Years

Nestle SA shares have gained 14 percent in the past 12 months and on April 3 touched a record 70 francs. Photographer: Valentin Flauraud/Bloomberg

Nestle SA (NESN), the world’s biggest food maker, said full-year sales will be at the lower end of a forecast after reporting its slowest first-quarter revenue growth since 2009.

Nestle now expects sales growth excluding acquisitions, divestments and currency swings to be nearer to the bottom of a 5 percent to 6 percent range, investor relations chief Roddy Child-Villiers said in a webcast with analysts today.

Emerging markets are decelerating after sales growth of more than 10 percent in the past two years, and the Vevey, Switzerland-based maker of DiGiorno pizzas is also suffering from weaker demand for its frozen foods, water, ice cream, and diet products in the U.S. and Europe.

“We see the past two years of aggressive emerging markets growth development now running out of steam and the prospects for a tight delivery on the Nestle model in 2013 will concern the market,” wrote David Hayes, an analyst at Nomura, using the company’s terminology for its long-term sales target.

Sales growth has beat Nestle’s target for six of the past 10 years. The last time the KitKat maker missed the goal was in 2009.

Nestle’s so-called organic sales growth was 4.3 percent in the first quarter, falling short of the 4.7 percent average estimate of 21 analysts surveyed by Bloomberg. It’s the third consecutive quarterly miss, which hasn’t happened in at least 11 years, according to Andrew Wood, an analyst at Sanford C. Bernstein.

Shares Decline

Nestle stock dropped as much as 2.4 percent in Zurich trading and was down 1.1 percent at 11:02 a.m., extending yesterday’s decline of 2.4 percent. That was the biggest two-day decline since Aug. 19, 2011 on an intraday basis. The stock is up 6.7 percent this year.

Earlier this week, Danone (BN) said like-for-like revenue rose 5.6 percent in the first quarter, beating analysts’ estimates, as renewed concern in China over the safety of baby-food products caused consumers to turn to established brands. Nestle’s infant nutrition revenue rose more than 10 percent in the quarter.

Nestle said sales were hurt by “softening” in certain emerging markets like Asia and after the destruction of a factory in Syria that supplied the Middle East. Revenue advanced 4.4 percent in the Asia, Oceania and Africa region, below analysts’ estimates and less than half of the 11 percent growth in the same quarter last year. The miss in Asia, Oceania and Africa was the “real stand out” in the results, according to Jeff Stent, an analyst at Exane BNP Paribas.

‘Rather Odd’

“This is not what people own Nestle for,” Stent wrote in a note to clients. “It seems rather odd to us that Nestle claims to be holding or growing its market shares in the region.”

Volume increased 2.3 percent, the slowest growth since the third quarter of 2011.

Four of the company’s seven product categories missed the company’s long-term sales target of 5 percent to 6 percent. They were beverages, water, milk and ice cream, and prepared dishes.

“The overall result was disappointing and the company is trying to bring down expectations after a slower-than-expected start to the year,” Jon Cox, an analyst at Kepler Capital Markets, said by phone. “It was a pretty downbeat call.”

‘Lumpiness’ Foreseen

In February, Chief Financial Officer Wan Ling Martello told analysts to expect “lumpiness” in Nestle’s results in 2013 as price increases provide less of a lift than in past years. Higher prices contributed 2 percent to first-quarter sales growth, more than analysts’ estimates of 1.2 percent. Pricing boosted sales in the year-earlier period by 4.4 percent.

Revenue at the Nestle Waters unit gained 1.8 percent, down from 6.4 percent last year, hurt by “intense” price pressure in the U.S. and the late arrival of spring, the company said. Nestle owns Pure Life, the world’s largest bottled-water brand.

Nestle cut prices on Gold Blend Nescafe in Russia last year. Switzerland, a market where the company gets about 2 percent of sales, has had pressure on prices for four years, Eugenio Simioni, head of the business, said April 11.

Sales in a business unit that includes the Nespresso single-serve coffee business and a unit that sells to restaurants and caterers rose 4.2 percent, less than half of the 8.7 percent growth generated in 2012. Nespresso had a slower start to the year than last year as it faced increasing competition, such as capsules from Swiss retailer Migros, Child- Villiers said on the conference call.

Nespresso Target

This is the first time in four quarters that Nestle didn’t say that Nespresso generated sales growth of at least 10 percent. The company did say Nespresso sales grew in all the regions it’s sold and reiterated a target for the brand to increase full-year revenue by about 500 million francs.

“The start to the year reflects the caution we expressed in February,” Chief Executive Officer Paul Bulcke said in a statement. “We continue to expect some volatility throughout 2013.”

In Europe, where the company said consumer sentiment remains low, sales grew 1.5 percent. Frozen food and pizza had a “weak start,” in part due to concerns over horse meat found in frozen meat dishes, while ice cream sales suffered due to the cold weather, the company said. Revenue in the Americas region grew 5.3 percent, helped by “strong” growth of dairy and ice cream in Mexico.

Organic sales at Nestle’s nutrition unit, which also makes BabyNes baby-formula capsules and Jenny Craig weight-loss products, increased 7.6 percent in the quarter, yet were hurt as sales of weight-management products continued to decline. Child- Villiers said the company was “not expecting immediate improvement” in that category.

Separately, Aspen Pharmacare Holdings Ltd. (APN) said it agreed to buy licenses to sell Nestle infant formula in Australia and southern African countries for $215 million. Nestle is selling assets after its $11.9 billion purchase of Pfizer Inc.’s Wyeth infant nutrition business to comply with antitrust regulators.

Sales of prepared dishes and cooking aids declined 0.1 percent. Pet care was the category that grew the most, with revenue increasing 7.9 percent in the quarter.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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