Nestlé sees food sales decrease as it misses sales forecast

By Will Chu

- Last updated on GMT

The makers of KitKat biscuits aren't the only food manufacturer to suffer from the current economic climate. (© iStock.com/darios44)
The makers of KitKat biscuits aren't the only food manufacturer to suffer from the current economic climate. (© iStock.com/darios44)

Related tags: Organic growth, Sugar

Net profit at Nestlé fell by more than a third in 2015 as the Swiss food giant missed sales forecasts making price rises difficult in a tough economic climate.
china map
CEO Paul Bulcke attributed 2014's performance to a shift in consumer preferences in China. (© iStock.com)

CEO Paul Bulcke attributed last year’s performance to slower global growth and a shift in consumer preferences in emerging markets such as China.

With Europe at a high risk of slowdown, falls in commodity prices have forced Nestlé to continue with a softer pricing model with increases deemed too risky.

The makers of Nescafé coffee, KitKat biscuits and Perrier bottled water, believed it wasn’t the only food manufacturer to suffer from the current economic climate. Unilever also predicted sluggish sales growth of between 3-5%.

Nestlé sales totalled $89.5bn (€80.6bn) – equivalent to 4.2% organic growth and 2.2% real internal growth. The figures represent the third consecutive year long-term targets of at least 5% growth in underlying, or organic sales, were missed.

The figures also represent the lowest since 2011, when $84.3bn (€75.9bn) was recorded. Sales in 2014 totalled $92.3bn (€83.1bn).

As a result, net profit was $9.2bn (€8.3bn), a decrease of 37% on the previous year ($14.6bn/€13.1bn).

Nestlé attributed the reduction of $5.4bn (€4.9bn) to the disposal in 2014 of part of the L’Oréal stake, combined with the revaluation of the Galderma stake. The firm added there were foreign exchange considerations to take into account.

Galderma, the pharmaceutical arm of Nestlé, was 50% owned by L’Oréal which Nestlé purchased in July 2014.

Basic earnings per share fell from $4.58 (€4.1) to $2.92 (€2.70).

‘Softer pricing’ in 2016

Nestle chocolate confectionery brands - robtek
In recent years Nestlé has reduced sugar by making products smaller.(© iStock.com)

Paul Bulcke, Nestlé CEO, said, “In 2015 we delivered profitable growth at the higher end of the industry in what is still a challenging environment.

“Our organic growth of 4.2% was supported by increased momentum in real internal growth combined with continued margin improvement. Additionally, we grew or maintained market share in the majority of our categories and markets.

“We kept up the focus on portfolio management, turning around our frozen food business in the United States, disposing of non-core businesses and forging a new partnership to create a leading player in ice cream.”

Bulcke said that for 2016, organic growth would be in line with 2015. “We anticipate that our trading environment in 2016 will be similar to previous years with even softer pricing.

“As such we expect to deliver organic growth in line with 2015, with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency,”​ he added.

It wasn’t all bad news, however. Nestlé saw 7% organic growth in its bottled water businesses, as a move away from sugary drinks has begun to pay dividends.

In addition to its beverage interests, Nestlé has begun reformulating and repackaging some of its best-selling food products to appeal to health conscious consumers.

In the past six years, Nestle has successfully reduced the sodium and total sugar content up to 22% and 31% respectively in its mostly widely purchased products in eight major food categories, according to a new study​ in the European Journal of Nutrition​.

In some cases, Nestlé has cut sugar by downsizing products. For example it cut 5 g from UK Aero bars to reduce sugar by 12%.

Nestlé Nutrition

The company announced Nestlé Nutrition sales at $10.6bn (€9.6bn), down from $10.99bn (€9.9bn) the previous year.

Infant formula, including growing-up milks, delivered good growth. In addition, Wyeth Infant Nutrition remained the key driver with its premium brand illume.

In the developed markets, Spain and Germany performed well, aided by successful innovation in NAN. The company said that tough comparisons and softer pricing due to lower input costs and moderating category growth across Asia had an impact.

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