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Nestlé Reports Drop in Sales, Profit -- Update

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02/16/2017 | 02:47am EST
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.

The company 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.

Nestlé said sales were 89.47 billion Swiss francs ($89.1 billion), up slight 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.

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

Write to Brian Blackstone at brian.blackstone@wsj.com

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