Nestle needs to inflate flat U.S. sales

by Jeff Gelski
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Nestle confectionery
Confectionery remained a weak segment for Nestle.
 

VEVEY, SWITZERLAND — Organic sales growth came in lower than expected for Nestle S.A. in the first half of the fiscal year, and that included North America, where consumer demand was soft.

Sales of 43,023 million Swiss francs ($44,585 million) were down 0.3% from 43,155 million Swiss francs in the first six months of the previous year. Organic growth was 2.3%. Vevey-based Nestle said full-year organic growth likely will be in the lower half of the 2% to 4% range.

Francois Xavier Roger, Nestle
Francois-Xavier Roger, c.f.o., executive vice-president of finance and control and a member of the executive board for Nestle

“Our results of 2.3% for the first half was below our expectations,” said Francois-Xavier Roger, chief financial officer, executive vice-president of finance and control and a member of the executive board for Nestle S.A., in a July 27 earnings call. “In general, we continue to see weak consumer demand and a challenging retail environment, particularly in Western Europe and North America.”

In Nestle’s Americas zone, first-half sales were 13,314 million Swiss francs ($13,797 million), down from 12,938 million Swiss francs in the same time period of the previous year. Organic growth in North America was flat following an improvement in the second quarter, Nestle said.

In the United States, Nestle had flat growth in the first half. Coffee creamers saw momentum, and pet care returned to growth. Confectionery remained weak, however, and ice cream sales declined because of poor weather. Frozen food sales were slightly negative.

Nestle coffee creamers
Nestle's coffee creamers saw momentum in the first half.
 

“North America continued to face an environment of soft consumer demand and an overall difficult trading environment,” Mr. Roger said.

Nestle on June 15 said it planned to explore options for its U.S. confectionery business, including a potential sale. Nestle has seen interest in the U.S. confectionery business, said Ulf Mark Schneider, chief executive officer, member of the executive board and director of Nestle S.A., in the July 27 call.

Ulf Mark Schneider, Nestle
Ulf Mark Schneider, c.e.o., member of the executive board and director of Nestle

“And, of course, while we would like to retain flexibility, when it comes to the ultimate solution and while we’re open toward creative deal proposals, I also wanted to confirm that our clear priority is straight sale of the business,” he said. “The process is on track as we announced it in early June, and we hope to complete the process by the end of this year.”

In Europe, Middle East and North Africa, first-half sales fell to 7,800 million Swiss francs from 8,694 million. Net divestments reduced reported sales by 9.3%.

In Asia, Oceania and sub-Saharan Africa, first-half sales rose to 7,902 million Swiss francs from 7,799 million behind organic growth of 4.8%. Growth in China turned positive in the second quarter as Yinlu, confectionery and culinary gained momentum.

Nestle ice cream
Nestle's ice cream sales declined because of poor weather.
 

Nestle Waters rang up organic growth of 4%. First-half sales of 4,025 million Swiss francs compared to 3,937 million Swiss francs in the same time period of the previous fiscal year. Nestle Waters in the United States had solid organic growth with modest improvement in the second quarter.

First-half sales in the Nestle Nutrition business, despite weak growth because of a difficult Chinese market, rose to 5,184 million Swiss francs from 5,171 million Swiss francs. Nestle’s Other business saw first-half sales grow to 4,798 million Swiss francs from 4,616 million Swiss francs. Within the Other business, Nestle Health Science maintained mid-single-digit growth. Nestle Skin Health had positive results for the first half despite a deceleration in the second quarter.

Nestle Gerber baby food
Nestle plans to focus on improving its Gerber baby food range.
 

“In summary, while the first-half results were soft, I’m pleased with the overall progress we are making on our value creation agenda,” Mr. Schneider said. “This includes, in particular: First, improving some of our underperforming assets like Yinlu (in Asia) and our Gerber baby food range in The United States; second, our cost-reduction efforts; third, portfolio management such as the recently announced review of our U.S. confectionery business; fourth, several small to mid-size acquisition projects that we’re working on in high-growth areas; and finally, the decision to increase balance sheet efficiency through higher leverage.” 

Nestle on June 27 said it planned to expand its presence in high-growth geographic markets and pursue growth opportunities in consumer health care. Company executives did not discuss those plans in the July 27 earnings call.

“While I understand that there is considerable interest in our future strategic direction, the investor day in late September (Sept. 26) will give us ample opportunity to discuss this in greater detail and with the necessary amount of context,” Mr. Schneider said.
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READER COMMENTS (1)

By Gerhard Foerster 7/28/2017 10:22:27 PM
The catering business takes more and more importance. I was catering manager in Colombia for CPC International (Hellmann's Mayonnaise FRUCO Ketchup, Maizena etc.) from 1982 to 1994 helping to growth in Brazil, Argentina, Mexico and Venezuela the business.The plan was, 20% of Retailbusiness has to be the Catering business. If you want, I can help.