Nestle cuts growth target on sluggish Europe

Underlying sales growth at Nestle missed forecasts in the first half and lagged the performance of key rivals, prompting the world's biggest food group to cut its sales goal as price erosion continued in Europe.

"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 group said in a statement on Thursday, lowering its full-year target to around 5 percent sales growth, from 5-6 percent previously.

Food groups have been grappling with lower growth in emerging markets, where Nestle's growth rates have slowed to a single-digit pace for several quarters now, and gloomy consumers in recession-hit Europe.

Nestle said substantially increased investment in its brands had delivered stronger volume growth momentum it expected to continue in the second half.

Underlying sales growth slowed to 4.1 percent in the first half, lagging a forecast for 4.6 percent in a Reuters poll, and implying a further slowdown from 4.3 percent in the first quarter, mainly due to a weaker performance in Europe.

"Disappointing organic growth rate due to weak development in Waters, Beverages and Prepared dishes and cooking aids. Slowdown in the emerging markets to 8.2 percent (from 8.4 percent in the first quarter)," Vontobel analyst Jean-Philippe Bertschy said.

"By contrast, Nestle positively surprised at the profitability level with a 20 basis point margin improvement, we were expecting a flat development," he said.

Net profit at the maker of KitKat bars and Maggi soups rose 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.

French yoghurt maker Danone reported a 6.5 percent rise in quarterly sales on the back of an improvement in recession-hit Europe. Anglo-Dutch Unilever said sales rose 5 percent in the quarter, but warned of slowing growth in emerging markets.

(Reporting by Silke Koltrowitz; Editing by David Cowell)