Nestle Sales Miss Estimates on Developing Market Slowdown
Stock Chart for Nestle SA (NESN)
Nestle SA (NESN), the world’s biggest food company, reported slowing sales growth that missed analysts estimates as demand stumbled in emerging markets and blamed disruptions including floods in the Philippines.
Nestle shares fell as much as 3 percent, the steepest decline since April 23. Nine-month revenue gained 6.1 percent excluding acquisitions, divestments and currency swings, the Vevey, Switzerland-based company said today. The average estimate of 12 analysts was 6.3 percent. It was the first time since 2009 that Nestle reported organic sales that fell short of expectations compiled by Bloomberg.
“There’s some red flags and the big surprise was the sharp slowdown” in the Asia, Oceania and Africa business, said Richard Withagen, an analyst at SNS Securities in Amsterdam. “I see this as a one-off rather than something structural, and given the track record of the company, I’d give them the benefit of the doubt.”
Sales growth of food companies is sputtering as consumers from China to Spain monitor spending amid the economic crisis and rising prices. Danone (BN), the world’s biggest yogurt maker, yesterday reported the weakest dairy product sales growth in more than three years, hurt by southern Europe. Nestle said business disruptions in Asia, Oceania and Africa weighed on a region that represents more than a quarter of sales.
The stock traded 2.3 percent lower at 60.85 Swiss francs as of 2:25 p.m. in Zurich, bringing the year-to-date gain to 13 percent. Shares of Unilever (UNA), the maker of Magnum ice cream, lost as much as 1.8 percent in Amsterdam trading.
“We expected a slowdown in growth, but we did not expect things to slow so much,” Andrew Wood, an analyst at Sanford C. Bernstein, wrote in a note to investors.
The Nespresso maker said it still anticipates growth of between 5 percent and 6 percent this year as well as an improved margin. Chief Executive Officer Paul Bulcke said “continued momentum” in shipments and some easing in raw-material costs allowed the maker of Purina pet food and Perrier bottled water to reiterate the targets. Nestle is “confident” sales growth will be within that range in 2013, Bulcke told journalists in China.
The typhoons in the Philippines closed production for a week, executives said. Third-quarter sales also were burdened by demonstrations in Pakistan, elections in Egypt and sanctions in Iran, Roddy Child-Villiers, director of investor relations, said on a conference call. One fewer shopping day in Europe and a delay in a Christmas confectionery campaign in Brazil also reduced third-quarter sales, the company said. The one-offs cut third-quarter sales growth by more than 1 percentage point.
Sales growth in the Asia, Oceania and Africa region slowed to 9.4 percent in the first nine months of the year from an 11.6 percent pace in the first half. Third-quarter sales growth was probably 5 percent, said Jeff Stent, an analyst at Exane BNP.
The quarter isn’t a “good guide” to the final three months of the year, Child-Villiers said.
“The underlying dynamism remains strong and we should be able to see evidence of that in the quarters to come,” said Nandu Nandkishore, head of the Asia, Oceania and Africa zone.
Nestle got more than 40 percent of 2011 revenue from emerging markets such as China. Half of its factories are in such countries, as it seeks stronger growth prospects as Europe struggles with its debt crisis.
“One quarter in emerging markets which is softer doesn’t worry me too much given the medium-term growth potential of China,” said Marco Gulpers, an analyst at ING Groep NV in Amsterdam. “The buying power is still increasing in China and that’ll provide support for growth going forward.”
Nestle also said today it will double the number of research and development facilities it has in China to four with new centers in Xiamen and Dongguan.
The volume of goods sold increased 2.9 percent, lagging behind the 3.2 percent analyst estimate. Nestle reiterated its forecast raw-material costs will rise at a “low-to-mid single- digit” pace this year.
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