Struggling global economy hits Nestlé

By Gary Scattergood

- Last updated on GMT

Related tags Real internal growth Organic growth Developed country Business terms Europe Asia

Bulcke: 'Stronger volume growth momentum'
Bulcke: 'Stronger volume growth momentum'
A double whammy of low consumer confidence in developed countries and lower growth in emerging markets combined to subdue Nestlé’s half yearly trading performance, figures published today reveal.

The global food and drink giant has lowered its full-year growth target to around 5% sales growth, from 5-6% previously, largely due to cutting prices in a bid to stimulate higher sales in recession-hit Europe.

Its European performance is of particular concern for City analysts, with Investec expert Martin Deboo questioning if the pricing policy was paying dividends.

“Of concern to us was a marked slowdown in Europe, where organic sales growth decelerated from +1.5% in Q1 ​[first quarter] to 0.5% in Q2​, on much lower pricing. Margins are slightly down and Nestlé points to a difficult pricing environment,”​ he noted.

​Nestlé will want to point to improving volumes in Q2 and the more benign commodity environment. But we expect the downward tweak in full year guidance to worry the market.”

Trading hit

Nestlé CEO Paul Bulcke conceded the wider economic environment was hitting trading: “In the first half we delivered a balanced performance, both top and bottom line, in an environment of lower growth and lower input costs. Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today’s more value conscious consumers.​ 

“This, combined with substantially increased investment behind our brands, delivered stronger volume growth momentum, whilst at the same time we were able to improve the operating margin.

"We expect this growth momentum to continue in the second half, allowing us for the full year to deliver, in line with our commitments, around 5% organic growth with an improvement in margins and underlying earnings per share in constant currencies.”​ 

The figures show that sales were up 5.3% to CHF 45.2bn (£31.6bn) – although this was the weakest first half yearly growth for four years. 

The group’s trading operating profit was CHF 6.8bn (£4.76bn), up 6.8%. 

Across its three geographies real internal growth was up 2.7% for the first half with the whole 2013 outlook predicted to be “5% organic growth with an improvement in margins and underlying earnings per share in constant currencies".

Value conscious

“Organic growth for the group was 5% in the Americas, 0.6% in Europe, and 6.3% in Asia, Oceania and Africa.

"Globally, our businesses in developed markets grew 1.0%, whilst emerging markets grew 8.2%. Our pricing reflected our desire to meet the expectations of today’s more value conscious consumers.

"As such, all three geographies accelerated their real internal growth in the second quarter.” 

In the nutrition sector, infant products had a good first half, growing in all three zones. They achieved double-digit growth in Asia, Oceania and Africa, and near double-digit in the Americas.

Infant formula and cereals were the key growth drivers, due to their presence in emerging markets where they grew double-digit. The US was also a highlight for formula with innovation in both the premium and value segments driving double-digit growth. 

However, the weight management sector continued to under-perform and the recent measures taken, including restructuring and a renewed focus on the online business, “have yet to show results”,​ said the firm.

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