Slow global growth prompts Nestle to reduce its sales guidance

by Keith Nunes
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Nestle Coffee-Mate products
Coffee-mate has been a key growth driver for Nestle.

VEVEY, SWITZERLAND — Nestle S.A. announced Oct. 20 it was reducing its fiscal 2016 sales guidance to 3.5% from 4%. The reduction reflects weak conditions in both developed and emerging markets, the company said.

Paul Bulcke, c.e.o. of Nestle

“In an environment marked by deflation and low raw material prices, we continued to privilege volume growth, resulting in real internal growth at the higher end of the industry in both emerging and developed markets,” said Paul Bulcke, chief executive officer. Pricing remained soft but increasing.

“Our growth was broad-based across categories, allowing us to gain or maintain market share in most of our businesses,” he said. “We are making progress in addressing our challenges and driving our different initiatives amidst a generally softer trading environment.

“For the full year 2016, considering the current softer environment, we expect organic growth of around 3.5%, improvements in margins and underlying earnings per share in constant currencies, and increased capital efficiency.”

Nestle frozen products
Nestle's frozen food category continued to grow with further market share gains.

During the first nine months of fiscal 2016, Nestle sales totaled 65,514 million Swiss francs ($65,844 million), an increase compared to the same period of the previous year when sales totaled 64,863 million Swiss francs ($65,189 million). Looking at sales between developed and emerging markets, the company said developed markets accounted for 58% of sales and emerging markets 42%.

In the company’s Zone AMS business unit, which includes North America, the company achieved 18.8 billion Swiss francs in sales.

Francois Xavier Roger, Nestle
Francois-Xavier Roger, c.f.o. of Nestle

“In North America, the environment remains deflationary, reflecting both low commodity pricing and pricing pressure in the market,” said Francois-Xavier Roger, chief financial officer. “(Real internal growth) remains solid, but decreased slightly from H1. Pet care and Coffee-mate remain as key growth drivers. Frozen food continued to grow well with further market share gains. After a complete overhaul of the marketing mix frozen has reached a normalized level of low- to mid-single digit growth. Confectionery in the U.S. remains difficult, with pressure on the entire category.”

One way Nestle will emerge from this period of slow growth is through innovation and management remaining focused on the long term.

“We are investing more in R.&D. because I feel the differentiation and the drive, the engine behind growth for the future is going to be new products,” he said.

Nestle candy products
Pressure on the confectionery category in the U.S. has affected Nestle's candy brands.

Innovation will play into the company’s ability to grow volume and “premiumize” some products.

“We continue to make further market share gains and in the current climate, this volume-driven growth is unique and differentiating in the industry and it reflects our long-term value creation model,” Mr. Roger said. “By growing volume and premiumizing, we are creating substance and bringing relevance to both our consumers and to the trade. Pricing does remain low due to the deflationary environment, but we saw some improvements since H1.”

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