Nestle SA, the world’s biggest food company, reported the slowest annual sales growth in five years, hit by stagnant revenue in China, its second-largest market, and deflationary pressure in Europe.
Revenue gained 4.5 percent in 2014 excluding acquisitions, disposals and currency shifts, the Vevey, Switzerland-based maker of Nespresso coffee and Maggi bouillon cubes said in a statement Thursday. That’s the slowest pace since 2009 and was in line with the 4.5 percent median estimate of 20 analysts in a Bloomberg News survey.
That makes the second year in a row that Nestle reports annual sales growth below the level of its long-term goal. Revenue in the Greater China region was little changed at 6.64 billion francs ($7.1 billion). The Swiss maker of Stouffer’s convenience meals has also been struggling with price competition in Europe and is trying to turn around its frozen-food business in North America.
“With organic growth again below the long-term target, it raises the question whether the goal should not be corrected downwards,” said Patrik Lang, an analyst at Julius Baer Group Ltd. in Zurich. “But it’s still clearly better than what we’re seeing the rest of the sector, which is why investors will still be happy.”
The company said it targets organic growth this year of around 5 percent and aims to achieve improvements in margins and underlying earnings per share in constant currencies.
Slower China
Sales growth in the Asia Oceania Africa region was 2.6 percent, compared with 2013’s 5.6 percent pace.
“The slower growth in the zone was due to our largest market China and to Oceania,” Nestle said. “We needed to adapt our portfolio to reconnect with the fast-changing expectations of the Chinese consumer.”
Political turmoil in Asia and the outbreak of Ebola in Africa made business there tougher, Nestle said in October. Weaker demand in emerging markets such as China has led Unilever, the maker of Ben & Jerry’s ice cream, to forecast no significant improvement in market conditions in 2015.
Nestle’s frozen-food business in North America weighed on growth in North America, the company said today, adding that it’s continuing efforts to reposition its Lean Cuisine, Hot Pockets and Stouffer’s meals by making them more “organic and ethnic.”
The maker of KitKat bars has been revamping its portfolio to revive sales growth. Bulcke has sold underperforming assets such as PowerBar snacks and the company is seeking a partner for its Davigel European frozen-products unit. The CEO has also been building Nestle’s dermatology business, having spent about $5 billion last year to acquire L’Oreal SA’s stake in a skincare joint venture plus rights to drugs from Valeant Pharmaceuticals International Inc.
Speculation arose this week that Nestle may be interested in buying Italian hazelnut-spread maker Ferrero SpA after the death of owner Michele Ferrero on Feb. 14. The Alba-based company said three days later it isn’t for sale.
Ferrero would make a good fit to boost Nestle’s chocolate business, though the Swiss company would probably have to sell its stake in L’Oreal to finance it, Warren Ackerman, an analyst at Societe Generale, said in a Feb. 16 note. He estimates Ferrero has an enterprise value of about 23 billion euros ($26 billion).
Strong Franc
Nestle’s earnings-per-share growth in 2015 will be wiped out due to the surge in the franc against the euro after the Swiss National Bank eliminated the cap to the European currency and the European Central Bank began its quantitative easing program, Sanford C. Bernstein analyst Andrew Wood said in a Jan. 27 note.
Nestle faces the biggest foreign-exchange exposure among European food and beverage companies as 98 percent of its sales are generated outside its home market, the note said.
The company said it has a natural hedge due to its operations and its dividend policy is sustainable in light of the SNB’s decision. The company said it’s raising its dividend to 2.20 francs a share this year, a 2.3 percent increase.
Currency shifts reduced 2014 underlying EPS by 6.1 percent.
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