Sales volumes rise but price cuts eat into revenues, according to latest figures
Sean Farrell
Tight spending by European consumers has hit sales at the world's biggest food group, as Nestlé missed first-half forecasts and cut its full-year guidance.
The KitKat and Nescafe maker said underlying sales growth was 4.1% in the first half of the year – less than the 4.5% expected by analysts as sales volumes rose but price cuts ate into revenues.
The Swiss giant lowered its estimate for annual growth to about 5% from earlier guidance of 5-6%.
Chief executive Paul Bulcke said: "Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of more value-conscious consumers."
Lower costs of raw materials meant the group was able to boost its profit margin but investors homed in on the closely watched "organic" sales line.
Analysts at Cannacord Genuity said organic sales growth slowed from 4.8% in the first quarter to less than 4% in the second quarter – the lowest rate since the second quarter of 2009 when the world was in recession.
"Nestlé's interim results are in line at the net income level but underlying sales momentum has deteriorated. We expect underlying growth to persist over the near term," Cannacord analyst Eddy Hargreaves said.
Nestle shares were down 2.2% at Sfr 63.25 (£44.30) in early afternoon trading.
Europe was Nestlé's weakest region, registering just 0.5% growth compared with 5% for the Americas and 6.3% for Asia, Oceania and Africa.
Nestlé's growth in emerging markets slowed slightly, though it said business was brisk in China, Indonesia, Malaysia and much of Africa. The launch of KitKat in Brazil went well, it said.
In western Europe however the wet spring hit demand for ice cream and frozen goods. Nestlé makes Häagen-Dazs and Mövenpick ice cream, among other brands. Britain and Germany were Nestlé's strongest markets. Outside Russia and the Czech Republic, consumer spending weakened in Eastern and Central Europe.
The European economy has shown signs of recovery recently with a slight increase in business confidence and activity. But Nestlé's performance underlines the continuing weakness with high unemployment and falling living standards.
The European Central Bank said yesterday that its quarterly survey of economists showed they had once again cut their growth expectations for the eurozone for this year and next.
Forecasters now expect activity to contract by 0.6% in 2013, down from a previous prediction of a 0.4% contraction, made just three months ago, the ECB said in its Survey of Professional Forecasters.
Economists expect growth to accelerate to 0.9% in 2014 – less than their previous forecast of 1.0%, before reaching 1.5% in 2015, also downwardly revised from 1.6%.
Greece released jobless figures showing its rate hit a fresh record in May of 27.6%, up from 27% in April as austerity and recession continued to weigh on prospects.
It was the highest since the country's statistics agency started publishing the data in 2006, and more than twice the 12.1% eurozone average in June.
The number of unemployed people in the country is now 1.38m, an increase of 30,558 compared with April.
Investec analyst Martin Deboo said: "Of concern to us was a marked slowdown in Europe, where organic sales growth decelerated … on much lower pricing. Margins are slightly down and Nestlé points to a difficult pricing environment."
Nestlé said it had increased marketing spending, suggesting sales volumes would take priority over revenues in the second half. Net profit rose 3.7% to 5.1bn Swiss francs (£3.6bn) in the first half, in line with estimates.
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