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Nestlé cuts sales growth target
Nestlé cuts sales growth target

Nestlé cuts sales growth target


Fin24/ Reuters - Aug 16th 2013, 08:16

Nestlé, the world's biggest food group, missed first-half sales forecasts and trimmed its 2013 target on Thursday, after it cut prices in Europe in a bid to lure recession-hit shoppers.  

Food groups have long been grappling with weak spending in western European markets and in recent quarters have also seen growth slow in developing countries.

Nestlé, the Switzerland-based maker of KitKat bars and Maggi soups, said underlying sales rose 4.1% in the first half, lagging a forecast for 4.6% in a Reuters poll, and implying a further deterioration from 4.3% in the first quarter, mainly due to weakness in Europe.

t lowered its full-year target to around 5% sales growth, from 5% to 6% previously.

"Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today's more value conscious consumers," the Vevey-based company said.

Nestlé said, however, that it hoped the price cuts and investment in its brands would fuel growth in sales volumes in the second half of the year. Marketing spending was up 60 basis points in the first half.

"Disappointing organic growth rate due to weak development in Waters, Beverages and Prepared dishes and cooking aids," Vontobel analyst Jean-Philippe Bertschy said, though he noted the firm had managed to improve its operating margin.

Organic sales strip out foreign exchange swings and the impact of acquisitions and are closely watched by analysts.

Nestlé said sales growth in Europe slowed to 0.6%, from 1.0% in the first quarter, hit by lower pricing. Germany and Britain saw healthy growth, but other markets, including eastern Europe, were hit by lower consumer spending.

The report contrasts with that of French yoghurt maker Danone, which reported a 6.5% rise in quarterly sales on the back of an improvement in European trading. Anglo-Dutch group Unilever said its sales rose 5% in the quarter, but warned of slowing growth in emerging markets.

Nestlé's growth in emerging markets also decelerated further to 8.2%, from 8.4% in the first quarter, though it added that China, Indonesia, Malaysia and much of Africa continued to grow well, and it had seen a recent pickup in southern Asia, Central West Africa and in the Middle East.

Net profit rose 3.7% to 5.1bn Swiss francs, in line with estimates in a Reuters poll, while the operating margin rose to 15.1% from 14.9% a year ago, helped by lower input costs and cost-cutting measures.

Nestlé shares were seen opening 0.4% lower, according to pre-market indications by bank Julius Baer. They have had a weak run so far this year, but have risen some 5% since Danone posted results last week.

They are trading at 17.7 times forward earnings, at a discount to Danone at 18.5 times, Unilever at 18.1 times and Kraft Foods at 18.6 times.

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