Nestle Misses Out – US-FOREX.US
European food companies like Unilever and Cadbury have generally done well out of the second quarter, posting solid sales growth even if the recession threatened to take a bite out of profitability. This made Nestle’s quarterly performance look all the more disappointing on Wednesday, as it failed to turn around a decline in sales and gave itself more headroom in its outlook for the year.
Nestle
blamed the 1% reported drop in quarterly sales, to 2.7 billion Swiss francs , on asset sales made in the past year and a rise in the Swiss franc’s value relative to many currencies. But even when excluding the effect of these items, growth came in at a disappointing 3.3%, dragged down by persistent weakness at Nestle’s bottled water and nutrition divisions.Shares of Nestle slumped 3.9%, or 1.70 Swiss francs , to 42.40 francs , during morning trading in Zurich. Earlier this month, Unilever
reported quarterly sales growth of 1%, while Cadbury
reported six-month sales growth of 13%. Over the past six months, Nestle’s sales have fallen 1.5%, though it has defended profitability better than some competitors.Nestle’s outlook also lacked bite: Nestle said that volumes and recurring sales would accelerate in the second half of the year, but it shelved its previous guidance for a growth rate approaching 5%. The firm also said it expected an “improvement” for its annual pre-tax, pre-interest profit margin this year, even though for the first half its margin was 10 basis points below the 2008 figure, at 14.1%.”Guidance for full-year “improvement” in margins seems a little incongruous given first-half performance,” said Andrew Wood, an analyst with Sanford C. Bernstein, but added that the company’s performance would at least improve in the second half of the year. Wood rated Nestle “outperform,” and has called it “the strongest and most balanced company in the European food group.”Nestle should indeed benefit from the trend of easing commodity costs, and the company plans to plow money back into advertising and promotion to boost growth. It’s a trend seen across the industry, as food companies compete for sales at a time when hard-pressed consumers are tempted to spend less and trade down.
Nestle is one of 14 stocks on Citigroup’s “most favored” list.