Nestlé has cut its growth target from 5-6% for the full year to ‘around 5%’ after cutting prices in Europe failed to generate as much revenue as it had hoped from cash-strapped consumers.
Referring to the revised growth target, CFO Wan Ling Martello said in a conference call with investors: “It’s not going to be easy. It’s going to be a stretch.”
The company reported a 3.7% increase in net profit during the first half, to CHF 5.1bn (€4.2bn), while sales rose 5.3% to CHF 45.2bn (€36.7bn).
Organic sales growth was 4.1% in the quarter, missing analyst expectations of 4.6% growth, according to a Reuters poll. Second quarter organic growth had also slowed from the first quarter’s 4.3% growth.
Andrew Wood, an analyst at Sanford C. Bernstein, said in a note that the revised target to around 5% “suggests below 5% (given H1 growth of just 4.1%) but without wanting to admit it yet”.
CEO Paul Bulcke said the slower growth was due to Nestlé’s response to price-conscious shoppers.
“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,” he said.
Wood said the second quarter was “very disappointing on the top-line, led by much lower than expected pricing”.
He pointed out that organic growth of 3.9% in the second quarter was the lowest growth the company had seen since Q3 2009, and was well below consensus expectations of 4.8%.
In Europe, organic growth slowed to 0.6% in the second quarter from 1% in the first quarter. Nestlé said that European consumers “are extremely sensitive to price”, leading it to increase investment in brands, although ice cream and frozen food sales remained weak.
Meanwhile, first half sales were up 5% in the Americas and up 5% in Asia, Oceania and Africa. Petcare was the company’s fastest growing business segment during the period, followed by Nutrition and Healthcare, although the Beverage, and Milk Products and Ice Cream divisions remained the largest contributors to revenue.
The company’s share price slipped 2.4% in early trading to CHF 63.15 (€51.33).