Nestle, SABMiller Spark Concern Over Weak Emerging-Market Growth
Nestle SA (NESN) and SABMiller Plc (SAB) reported sales growth in emerging markets that missed estimates, sparking concern of a slowdown in regions that consumer-goods makers are relying on to offset slumping markets across Europe.
Nestle, the world’s biggest food company, fell the most in six months in Zurich trading after saying flooding in the Philippines and other business disruptions in parts of Asia, Oceania and Africa weighed on a region that represents more than a quarter of sales. SABMiller also slid after the world’s second-largest brewer said sales were hindered by a more modest pace of growth and weaker consumer sentiment in Latin America, its most important region for sales and profitability.
Sluggishness in emerging markets would be a blow to European consumer-goods makers that have expanded from Brazil to China to compensate for slowing economies closer to home. Nestle, which last year paid $1.7 billion for a 60 percent stake in Chinese snack and candy maker Hsu Fu Chi International Ltd., said nine-month sales growth in the Asia, Oceania and Africa region was 9.4 percent, decelerating from 11.6 percent in the first half.
“There’s definitely an element of complacency about emerging-market growth,” said Spiros Malandrakis, an analyst at Euromonitor International in London. “I wouldn’t sound the alarm bell saying they’re dead in the water, not by a long shot, but it would be better to be more realistic about the expectations we have from these markets.”
Nestle shares declined as much as 3 percent to 60.40 Swiss francs, the steepest drop since April 23, while SABMiller fell as much as 1.7 percent to 2,609.5 pence, the lowest price since July 4. Unilever, (UNA) the maker of Dove soap and Lipton tea that gets more than half its sales in emerging markets, declined as much as 1.8 percent in Amsterdam, the most since Sept. 10.
“This is a sector where valuations have gone up” because investors thought the sector was resilient,’’ said Richard Withagen, an analyst at SNS Securities in Amsterdam. “But the entire sector is expensive and even these companies can get hurt in today’s trading environment.”
A slowdown in growth in the Asia, Oceania and Africa region was caused by a confluence of events such as typhoons in the Philippines that closed production for a week, Nestle executives said today. Sales also were burdened by demonstrations in Pakistan, elections in Egypt and sanctions in Iran, they said.
Nestle said it’s still aiming for a “double-digit” sales increase in China, where government figures today showed that economic growth slowed for a seventh quarter.
“The underlying dynamism remains strong and we should be able to see evidence of that in the quarters to come,” said Nandu Nandkishore, Nestle’s head of the Asia, Oceania and Africa zone, speaking of the region as a whole.
Nestle stuck to its full-year forecasts for growth of 5 percent and 6 percent in sales excluding acquisitions, disposals and currency swings, as well as an improved margin.
SABMiller, the maker of Grolsch and Peroni beers, reported sales in the growth markets of Latin America, Africa and Asia that missed analysts’ estimates.
In Latin America, the brewer’s largest region for sales and profitability, organic lager volume rose 4 percent in the six months ended Sept. 30, compared with a median analyst estimate of 5.5 percent. Sales in the region were held back by a more “modest pace” of economic growth in the second quarter and weaker consumer sentiment, the company said.
Analysts covering Brazil’s economy lowered their estimate for economic growth this year for the first time in four weeks, according to a survey of analysts released this week. Brazil and South Korea both cut interest rates last week to spur growth.
End of the Rainbow
“Some people thought they’d found the end of the rainbow in those regions, but they haven’t,” Malandrakis said.
The increasing number of western companies that are seeking growth in developing regions to combat slower growth at home means that markets are becoming more crowded, said Paul French, a China-based strategist at researcher Mintel.
“In short, the emerging-market consumer pizza is still getting larger, but the number of brands wanting a slice of it is also growing,” he said.
Still, consumer-facing companies in Europe are finding that the world’s developing regions still provide the strongest sources of growth. Remy Cointreau SA (RCO), France’s second-biggest distiller, said today that growth in Asia was “satisfactory” in the first half, while Europe “lagged behind.”
Remy shares fell as much as 8.4 percent, the most in more than 3 1/2 years, after slowing growth in sales of cognac caused second-quarter revenue to miss analyst estimates. The stock was down 6 percent at 81.97 euros as of 1:22 p.m. in Paris.
“Emerging markets are going through a lower-growth phase currently, but this is going to improve again,” said Boris Planer, an economist at Planet Retail in Frankfurt. “Emerging markets are going to improve in 2013 and 2014.”
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