October 16, 2015 / 5:48 AM / in 2 years

Nestle sees sales growth below long-term target as emerging markets lag

A Nestle logo is pictured on sample products on display at the company headquarters in Vevey February 19, 2015. REUTERS/Denis Balibouse

VEVEY, Switzerland (Reuters) - Nestle NESN.VX, the world’s biggest maker of packaged foods, has warned that yearly sales growth would fall short of its long-term target this year due to weak sales in Asia, raising concerns over its position in major emerging markets.

Sales in Nestle’s Asia, Oceania and Africa (AOA) region fell 3 percent and the company, whose brands range from Nescafe and KitKat to Perrier, cut its sales growth forecast for 2015 to around 4.5 percent, below its broader objective of 5 to 6 percent growth in coming years.

Analysts at Barclays said the statement had reignited a debate around Nestle’s capacity to fix its emerging market business, adding these operations had been “a disappointment for several quarters in a row”.

Nestle shares, which had risen the previous session to a near two-month high, were down 2.5 percent at 73.25 Swiss francs by 1235 GMT (0835 ET).

Many consumer goods companies have been hurt by sluggish global economies and the cooling of once-hot markets like China and Brazil. But Nestle faces specific problems in Asia’s largest markets, China and India.

In India a recall of its Maggi noodles is hampering sales, while in China, Nestle’s second-biggest market after the United States, the group conceded its product plans had yet to bear fruit.

“There are things that we need to do better (in China), even if you set aside the macroeconomic situation,” said Wan Ling Martello, recently named head of the AOA having previously been chief financial officer. “We are a little behind in terms of innovation.”

As an example of its planned product innovations, Martello said Nestle was repositioning Yinlu peanut milk for a relaunch in the first quarter of 2016, having last February discussed updating the brand to satisfy consumers who want fewer additives and alternative ingredients.

DRAMATIC IMPACT

In India, Nestle is suffering in the aftermath of a recall of its Maggi noodles, a package of which was found to contain an excessive amount of lead. CEO Paul Bulcke said this had had a dramatic impact. “We had no Maggi noodles on the shelves for five, six months now,” he said.

The recall contributed 30 of the basis points in the Swiss food group’s headline 2.1 percent sales drop in the nine months through September. At 64.9 billion Swiss francs ($68 billion), nine-month sales missed analysts’ average 65.9 billion forecast.

Nestle’s Indian unit (NEST.NS) said a court-mandated test on the noodles found them to be safe with the levels of lead present well below permissible limits.

Nestle’s underlying sales growth, adjusted for currency swings, acquisitions and divestitures, slowed to 4.2 percent in the first nine months, sliding further behind its earlier 5 percent target for 2015.

That implies third-quarter growth around 3.5 percent, said Jefferies analysts, down from 4.5 percent in the first half. The results came a day after rival Unilever (ULVR.L) (UNc.AS) posted third-quarter underlying sales up 5.7 percent. Excluding one-time items, such as last year’s squeeze on earnings in China, Unilever said sales growth would have been in the 3.5 to 4 percent range.

Writing by Martinne Geller; Editing by Michael Shields and David Holmes

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