August 8, 2013 / 5:55 AM / 4 years ago

Nestle cuts sales growth target on sluggish Europe

4 Min Read

A Nestle logo is printed by a 3D printer during a display for the inauguration of the system technology centre for the design, development and deployment of their products in Orbe March 25, 2013.Denis Balibouse

ZURICH (Reuters) - Nestle NESN.VX, 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.

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

It lowered its full-year target to around 5 percent sales growth, from 5-6 percent 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.

Nestle 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.

Nestle said sales growth in Europe slowed to 0.6 percent, from 1.0 percent 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 (DANO.PA), which reported a 6.5 percent rise in quarterly sales on the back of an improvement in European trading. Anglo-Dutch group Unilever (UNc.AS) (ULVR.L) said its sales rose 5 percent in the quarter, but warned of slowing growth in emerging markets.

Nestle's growth in emerging markets also decelerated further to 8.2 percent, from 8.4 percent 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 percent to 5.1 billion Swiss francs, in line with estimates in a Reuters poll, while the operating margin rose to 15.1 percent from 14.9 percent a year ago, helped by lower input costs and cost-cutting measures.

Nestle shares were seen opening 0.4 percent 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 percent 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 KRFT.O at 18.6 times.

Editing by David Cowell and Mark Potter

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