Nestlé outlook for weakest sales in 20 years gives Loeb ammo

Zurich - Nestlé SA warned that sales growth this year will be the weakest in at least two decades, giving activist investor Dan Loeb ammunition for his campaign to spur the world’s largest food company to rejuvenate its businesses.

Organic revenue growth will be at the lower half of its 2% to 4% forecast, the Vevey, Switzerland-based company said in a statement on Thursday. Sales increased 2.3% in the first six months of 2017, missing analysts’ estimates. The shares fell as much as 1.9% in early Zurich trading.

“A semester to forget,” Jean-Philippe Bertschy, an analyst at Bank Vontobel, wrote in a note, saying all the key numbers worsened and missed expectations. “Nestlé will have to convince investors at the investor day in September that it will be able to accelerate growth and deliver on profitability. Sense of urgency more than ever.”

Chief executive officer Mark Schneider is under pressure to turn around the maker of Nespresso coffee and Gerber baby food after Loeb revealed a $3.5bn stake last month, demanding asset sales and higher shareholder returns.

The food industry has been struggling with slowing sales as consumers shun packaged food they perceive as unhealthy. Unilever last week said it’s boosting efficiency measures after sales growth met analysts’ estimates, helped by price increases that offset stagnant volume.

Increased restructuring activity weighed on Nestlé’s operating profit margin by some 30 basis points on a reported basis, which highlights the challenge in turning around the business, said James Targett, an analyst at Berenberg.

Schneider has started an overhaul by reviewing Nestlé’s US confectionery unit for a possible sale, as well as announcing a buyback of as much as 20 billion francs in shares. He is scheduled to meet investors on September 26 in London to present his full strategy.

Among other highlights: 

• Nestlé will go into second half with a “cautious” stance on pricing, chief financial officer Francois-Xavier Roger said on a call with reporters.

• Nestlé’s commodity costs rose for first time in two years Organic growth in Europe, Middle East and North Africa was 1%, weighed down by price increases in western Europe.

• Hot weather also affected demand for coffee and pizza Nutrition unit increased sales by 0.9% on an organic basis. That missed the 1.8% analysts expected as price increases in Brazil and Mexico weighed on volume.

• Still, Roger said he expects the business to improve in the second half Asia, Oceania and Africa had organic sales growth of 4.8%, beating analysts’ estimates, with China turning positive in the second quarter.

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