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Nestlé Misses Growth Target for Fourth Straight Year -- Update

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02/16/2017 | 09:30am CET
By Brian Blackstone 

VEVEY, Switzerland-- Nestlé SA on Thursday reported weaker-than-expected 2016 profit and a sharp slowdown in an important sales metric, underscoring the challenges facing consumer-goods companies amid sluggish growth and low inflation in key markets.

The Swiss-based consumer giant, owner of Nesquik flavored drinks, Puppy Chow pet food and Stouffer's frozen dinners, said organic sales--which strip out the effects of currency fluctuations, acquisitions and divestments--grew just 3.2%, down from 4.2% in 2015. It was the fourth straight year that Nestlé had missed its 5-6% growth objective, known as the "Nestlé Model."

"There's no beating around the bush, it came in lower than we expected," said Nestlé's new Chief Executive Ulf Mark Schneider, who has been on the job since Jan. 1.

Things are unlikely to improve much this year. Nestlé said Thursday that organic growth should come in between 2% and 4% this year. "This is a volatile and still somewhat deflationary environment," Mr. Schneider said, referring to the difficulty consumer-goods companies such as Nestlé have in raising prices.

Mr. Schneider said pricing improved in the second half of 2016, but less strongly than the company had hoped.

Meanwhile, Nestlé appeared to back away from its longstanding growth objective, saying Thursday that its aim by 2020 was to achieve "mid-single-digit organic growth" as opposed to the 5-6% range it has long sought.

"We get the impression that Nestlé plays it a bit too safe, laying a conservative base in Mr. Schneider's first year (i.e. restructuring) on which the company expects to accelerate," analysts at Baader Helvea Equity Research wrote in a research note.

Nestlé said sales were 89.47 billion Swiss francs ($89.1 billion), up slightly from 2015 but just below analysts' expectations. Net profit was 8.5 billion francs, down from 9.1 billion francs in 2015 and well below analysts' expectations of around 9.5 billion francs. Last year's profit was weakened by a roughly half-billion franc, noncash adjustment related to local taxes.

Nestlé said it would "increase restructuring costs considerably" this year to maintain profitability.

Nestlé has taken action on other fronts in recent years, cutting sugar and changing its marketing strategy for Nesquik while revamping its frozen foods business, which includes Lean Cuisine, with new recipes.

Thursday's results highlight the challenges facing Mr. Schneider, who joined Nestlé from German health-care company Fresenius SE.

Mr. Schneider's health-care background, and his being the first outsider tapped to run Nestlé in nearly a century, raised hopes among investors and analysts that Nestlé would accelerate its push into faster-growing areas such as health sciences and medical foods.

Yet those areas are still small compared with mainstays such as beverages and prepared foods. Nestlé's nutrition and health sciences division generated 15.04 billion francs in revenue last year, 17% of the company's total.

Write to Brian Blackstone at [email protected]

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