Nestlé SA forecast a challenging fourth quarter after nine-month sales missed estimates, leading analysts to question whether the world’s largest food company will reach its full-year sales target.
Business in the company’s Asia and Africa business has become tougher, especially in China, the KitKat maker said today, citing political turmoil in some countries and the outbreak of Ebola in Africa. The shares fell as much as 4.2 per cent, the steepest intraday drop in more than three years.
While the company reiterated its forecast for sales growth of about 5 per cent for the year, it will probably miss the goal, according to Patrik Lang, an analyst at Julius Baer Group Ltd. in Zurich. Nestlé is struggling to lift prices in Europe, facing a slowdown in Asia and wrestling a decline in its frozen-food business in North America. “Nestlé has a structural problem in Asia, especially in China,” Lang said.
The shares traded 2.7 per cent lower at CHF 65.15 as of 11:12 am in Zurich trading.
Nestlé Chief Executive Officer Paul Bulcke said at a press conference that it would be “dangerous” to adjust the annual sales target when pressure on the business is increasing because it’s a goal for employees to aim for.
“There’s 10,000 reasons to soften our guidance,” Chief Executive Officer Paul Bulcke said today at a press conference at Nestlé’s Vevey, Switzerland headquarters. “If you soften up, you might get what you want.”
Margin Target
China and Oceania are among the main difficulties for the company, Chief Financial Officer Wan Ling Martello said.
Nestlé said it’s preparing for how to deal with the Ebola outbreak in West Africa as cocoa prices increase on concern it may spread. The company is on “high alert” and has no factories in the three countries currently affected - Sierra Leone, Liberia and Guinea, Bulcke said. Cocoa futures have gained 16 per cent in the past month.
Nestlé repeated forecasts for an improvement in margins and underlying earnings per share in constant currencies for the year. The margin target may also be tough to achieve, said Alain-Sebastian Oberhuber, an analyst at MainFirst in Zurich.
Total revenue for the nine months fell 3.1 per cent to CHF66.2 billion ($70 billion), missing analysts’ estimates for CHF66.7 billion. Organic sales exclude acquisitions, divestments and currency swings.
Currency Impact
The weakness of currencies against the franc stripped 7.5 percentage points from growth, Nestlé said. Danone said yesterday currency volatility was one of the reasons it’ll be harder to achieve its full-year targets.
Nestlé has been revamping its portfolio by selling assets to revive sales growth, which reached a four-year low in 2013. Portfolio management is “ongoing,” following the sale of the Juicy Juice brand, Nestlé said today.
Bulcke spent $5 billion this year to build the dermatology business, acquiring the rest of its Galderma joint venture and rights to drugs from Valeant Pharmaceuticals International Inc. The company also started an 8 billion-franc share buyback program in August.
Bloomberg News, edited by ESM
