Nestlé Posts Lackluster Growth Amid Investor Pressure -- 2nd Update

By Brian Blackstone Features Dow Jones Newswires

Nestlé SA on Thursday said sales slid slightly during the first half of the year and a key growth benchmark came in below market expectations, raising pressure on the packaged foods-giant to find ways to boost profitability and pacify restless investors.

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Organic growth, which strips out the effects of currency changes, acquisitions and divestments, came in at just 2.3%, missing analyst forecasts for 2.7% growth. Nestlé warned that organic growth would likely be in the "lower half" of the 2-4% range this year.

The results underscore the challenges facing Chief Executive Mark Schneider. He assumed the post in January and quickly ditched a longstanding target for annual organic growth of 5% to 6%, which Nestlé has missed for four-straight years.

In June, billionaire activist investor Daniel Loeb's Third Point LLC said it had taken a $3.5 billion 1.25% stake in Nestlé and pressed for changes, including the sale of non-core assets such as Nestlé's stake in L'Oréal. Days later, Nestlé announced a 20 billion franc share buyback program and said it would orient its capital spending toward high-growth parts of its business, including pet care, infant nutrition, coffee and bottled water.

In a sign of Nestlé's difficult environment, the company reported first-half revenue of 43 billion Swiss francs ($45.2 billion) on Thursday, compared with 43.2 billion francs in the same period of 2016, slightly below analysts' forecasts of 43.8 billion francs.

Net profit came in at 4.9 billion francs, up 19% on the year, although the sharp rise was partly because of a one-off tax adjustment last year. Analysts had expected profit at 4.8 billion francs.

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Analysts at Baader Helvea Equity Research said the results could increase pressure on Nestlé to make changes and said new steps could be announced at Nestlé's Capital Markets Day in September.

Nestlé shares were down 1% at 0930 GMT on Thursday, having pared some losses.

The company blamed warm summer weather for weakening spending on items such as pizza, with expenditure on water failing to provide the offset it has in the past.

Nestlé also continued to face difficulty raising prices in key markets, despite lower deflationary pressures.

"We have seen some signs of improvement in western countries," said Nestlé chief financial officer François-Xavier Roger in a conference call. "We have less negative prices, but we still have negative prices."

In June, Nestlé put its U.S. confectionery business, which includes Butterfinger and Crunch candy bars, up for sale. Though candy makes up a small slice of Nestlé's U.S. sales, the decision underscored the company's focus on its more profitable divisions like coffee and water.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

July 27, 2017 06:09 ET (10:09 GMT)