Switzerland — Nestlé’s new CEO scrapped the food company’s long-standing sales target as it reported disappointing annual results on Thursday, adopting a more cautious tone in an uncertain environment.
The maker of Kit Kat chocolate bars and Nescafé coffee is aiming for between 2% and 4% underlying sales growth this year, below analysts’ estimates and the "Nestlé model" for growth of 5% to 6%. In his first public appearance since becoming CEO at the start of the year, food industry newcomer Ulf Mark Schneider said the lower target reflected economic uncertainty. "This is a volatile and still somewhat deflationary environment," Schneider told reporters at the company’s Vevey headquarters. "We felt this was wise and prudent."
The earnings from Nestlé are the latest in a series of tepid results from consumer goods groups which have blamed weakness in the emerging markets that had previously fueled their growth. Unilever cited problems in Brazil and demonetisation in India, while Danone pointed the finger at tough conditions in China.
In 2016, Nestlé’s net profit fell and sales rose less than expected, hit by slowing emerging markets and deflation. The company’s shares were down 1.1% at 72.35 Swiss francs at 08.45am GMT.
Schneider replaced the Nestlé model, which the Swiss company has missed for four straight years, with the slightly more vague goal of "mid-single-digit organic growth and significant structural cost savings by 2020". He said he expects pricing to improve this year and plans to use a combination of cost-cutting and portfolio management to help hit his mid-term targets.
The company, which also owns Gerber baby food and Perrier water, forecast a "stable" trading operating profit margin in 2017, due to expectations for increased restructuring costs of about 500-million Swiss francs ($498m).
Weaker than expected
Nestlé, the world’s largest packaged food group, reported 2016 sales of 89.5bn Swiss francs ($89.3bn), up 3.2% on an organic basis. This was below the 4.2% growth seen in 2015. Analysts, on average, were expecting 2016 growth of 3.4%, according to a Reuters poll. Net profit fell to 8.5bn Swiss francs, well short of the average estimate for 9.59bn Swiss francs in the poll, hit by a one-off, non-cash adjustment to deferred taxes and an inventory level adjustment at Nestlé Skin Health.
Nestle proposed increasing its dividend to 2.30 Swiss francs per share, compared to 2.25 Swiss francs last year. Growth in emerging markets slowed to 5.3% from 7.0% a year ago, hit by continuing problems at the Yinlu drinks business in China.
Reuters
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