Nestle expects below-target sales growth again in 2014

VEVEY: Nestle expects another challenging year that could see it undershoot its long-term targets again, after price pressures in Europe and weaker emerging market demand slowed sales growth to 4.6% in 2013.

Food companies face slowing demand both in emerging markets, where economies are losing steam, and in austerity-hit Europe where consumers are tightening their belts.

"Last year was challenging, and 2014 will likely be the same," the world's biggest food group said on Thursday.

"We therefore expect our 2014 performance to be similar to last year and again weighted to the second half, outperforming the market, with growth around 5% and improvements in margins."

Last summer, the maker of KitKat chocolate bars and Buitoni pasta lowered its 2013 guidance for organic sales growth, which strips out currencies and acquisitions, to "around 5%" compared with a long-term target of 5%-6%.

"Guidance was fairly cautious for 2014," said Bernstein analyst Andrew Wood. "But this is still reasonable in a tough market environment," he said, adding that Nestle's rivals had given similar guidance.

Some other analysts said Nestle's forecasts were unimpressive. Prices in pre-trading suggested its shares could fall 1.4% at the open.

Nestle's net profit fell slightly to 10.02 billion Swiss francs (US$11.12bil), short of a 10.69 billion franc forecast in a Reuters poll of analysts, due to the costs of portfolio restructuring and a negative currency impact.

Its trading operating margin improved by 20 basis points to 15.2%.

The company, which also makes Maggi soups and Nespresso portioned coffee, said last October it would get rid of underperforming brands and has since sold several businesses, including the bulk of its Jenny Craig weight management activities and the PowerBar sports nutrition brand.

Sales at the Swiss-based company rose to 92.2 billion francs, lagging a forecast of 93.1 billion francs in the poll.

RECOVERY SIGNS

Food groups started to feel the pinch from slower emerging market demand towards the end of 2012 but signs of a recovery have accumulated in recent months.

Lipton tea maker Unilever said last month it would stick to its growth strategy for emerging markets after quarterly sales growth there accelerated to 8.4%.

Danone said on Wednesday it was raising its stake in China's top dairy firm to tap into booming local demand.

Nestle's sales growth in emerging markets, which accounted for 44% of group sales, stood at 9.3% last year, an acceleration from 8.8% in first nine months.

In Europe, prices of Nestle products continued to fall, eclipsing volume growth, while the Americas recorded organic growth of 5.1%, thanks to both volumes and pricing.

Vontobel analyst Jean-Philippe Bertschy said Nestle's proposed dividend of 2.15 francs per share, up 5% versus last year, was disappointing given an 11% increase in underlying earnings per share.

Nestle said on Tuesday it was reducing its decade-old stake in L'Oreal to 23%, dampening speculation it could sell the entire stake soon.

The cosmetics maker bought the shares that Nestle sold, paying with its holding in joint venture Galderma and 3.4 billion euros in cash that Nestle wants for a share buy-back.

Several analysts regretted that Nestle did not give details of the buy-back on Thursday.

Nestle shares, which have gained 2.8% so far this year, are trading at about 18.9 times forward earnings – a premium to peers Danone at 17.4 times and Unilever at 17.2.

"Given the recent out-performance of Nestle and the stock still trading above Unilever on EV/EBITDA, we would see the share price outlook more muted," Helvea analyst Andreas von Arx said – Reuters.