If further proof were needed of the challenges facing the giants of fmcg, Nestlé served up its slowest growth this century on Thursday. Weakness in the US, which has also blighted rivals such as Mondelez, Kraft Heinz and Kellogg, hurt the Swiss group’s 2017 results as consumers continued to shun mainstream packaged food in favour of cheaper own-label or healthier snacks.
Shares in the Kit Kat maker slumped 2.5% to CHF75.42 late on Thursday afternoon after CEO Mark Schneider said organic sales growth of just 2.4% missed expectations. The man brought in to turn around the group’s fortunes in 2016 also issued a cautious outlook for the year ahead, with organic revenues expected to grow at 2%-4% in 2018 on last year’s CHF89.8bn (£69.2bn), which is below usual growth rate of 5% or higher. Andrew Wood of Bernstein said he hoped the sixth straight year of slowing growth was the “nadir”. “The turnaround under Schneider is still a ‘work-in-progress’,” he added.
Some cheer was provided by a boost to margins from efficiencies and restructuring, which saw underlying operating profits rise 2.9% to CHF14.7bn. However, it was offset by a CHF900m (£692.5m) increase in one-off charges and a CHF900m jump in commodity costs. Pre-tax profits fell from CHF12.5bn in 2016 to CHF9.5bn last year. Liberum analyst Robert Waldschmidt said Schneider’s efforts to shift the group’s focus toward a better balance between margin expansion and top-line growth were welcome, but warned that “significant structural headwinds persist”.
Nestlé also informed the market it would not raise its 23% stake in L’Oréal. It had the chance to after the death last year of Liliane Bettencourt, matriarch of the French group’s founding family. However, Nestlé has been under pressure from activists to sell. Waldschmidt said he didn’t think a sale was “imminent”. “A spin-off of the stake to shareholders is as likely as an outright sale without the pre-cursor of large-scale M&A.”