Nestle reports slight decline in nine-month sales for 2017

19 Oct 2017 --- Total reported sales for Nestlé decreased by 0.4 percent to CHF 65.3 billion (US$66.6 billion), reduced by net divestments of 2.6 percent (mainly due to the creation of the Froneri joint venture) and negative foreign exchange effects of 0.4 percent. Organic growth was 0.8 percent in developed markets and 5.1 percent in emerging markets.

The company has confirmed sales guidance for 2017, and now expect organic growth for the full year to be around the level of the nine-month period. The underlying trading operating profit margin for 2017 is set to improve by at least 20 basis points in constant currency, in line with Nestlé’s expectations. 

The company’s structural savings initiatives are progressing faster than originally planned, leading to an additional increase of CHF 400-500 million in restructuring and related expenses in 2017. 

As a result, Nestlé’s trading operating profit margin will decrease by 40-60 basis points in constant currency, it says, and expects underlying earnings per share in constant currency and capital efficiency to increase.

“Our sales results for the nine-month period are in line with our expectations communicated in July,” says Mark Schneider, Nestlé CEO. 

“Organic sales growth continued to benefit from industry-leading volume growth, which illustrates our ability to innovate and meet consumer demand. Pricing remained soft. Zone AOA saw further improvement in organic growth. As expected, Western Europe returned to positive organic growth, with significant contributions from coffee and confectionery.”

“Improving our efficiency is a key priority. We have identified further opportunities to accelerate our margin improvement, leading to a further increase in restructuring and related expenses in 2017.”

“Consequently, we now expect our trading operating profit margin to decrease by 40-60 basis points. The development of our underlying trading operating profit margin is fully in line with our expectations for 2017.”

Group sales
Organic growth increased to 2.6 percent, supported by improved RIG of 1.8 percent. Pricing softened slightly to 0.8 percent. Net divestments had a negative impact of 2.6 percent, largely related to the creation of the Froneri joint venture. Foreign exchange reduced reported sales by a further 0.4 percent. Total reported sales were CHF 65.3 billion (US$66.6 billion).

Meanwhile, growth in zone AMS remained subdued. North America was flat in the context of negative category dynamics, while Brazil was affected by the difficult trading environment.

Mexico remained resilient and other parts of Latin America continued to deliver good growth. Zone EMENA saw a significant improvement in growth compared to the half year, as the coffee and petcare categories drove strong RIG in the third quarter. 

Zone AOA 's growth was strong, with steady improvement in China and sustained high growth in other sub-regions supporting the positive trend. 

Nestlé Waters was impacted by poor weather, which weighed on growth in the third quarter. Growth in Nestlé Nutrition remained soft, while Nespresso reported mid-single-digit growth, with double-digit growth in North America. 

Nestlé Skin Health benefited from the phasing of several new product launches. Nestlé Health Science reported mid-single-digit growth.

Growth by category was broad-based, led by coffee, petcare and ambient culinary.

Zone Europe, Middle East and North Africa (EMENA)
Western Europe returned to positive organic growth, with both positive RIG and pricing.

Central and Eastern Europe maintained mid-single-digit organic growth, with strong RIG and slightly negative pricing.

The Middle East and North Africa saw low single-digit organic growth, with positive RIG and pricing.

Organic growth improved to 1.9 percent, supported by higher RIG of 1.4 percent and sustained positive pricing. Net divestments reduced reported sales by 10.5 percent, mainly due to the transfer of ice cream to the Froneri joint venture. 

Foreign exchange effects reduced reported sales by a further 0.8 percent. Reported sales in Zone EMENA declined by 9.4 percent to CHF 11.8 billion (US$12 billion).

Organic growth accelerated across all sub-regions. RIG improved significantly in Western Europe, with good third-quarter growth in coffee, confectionery and culinary. 

Central and Eastern Europe continued its strong momentum, particularly in Russia, reflecting increased distribution. Petcare was strong across the zone, with double-digit organic growth in Central and Eastern Europe. Growth in the Middle East and North Africa improved in the third quarter, but the trading environment remained challenging overall.

Nestlé Nutrition
In China, organic growth remained subdued but with an improvement in the third quarter. The US and Mexico had slightly positive organic growth but Brazil declined on lower pricing. Organic growth in South Asia and Africa remained strong.

Organic growth remained soft at 1.0 percent, comprised of 0.4 percent RIG and 0.6 percent pricing. Net divestments and foreign exchange reduced reported sales by 0.4 percent and 0.4 percent, respectively. Reported sales in Nestlé Nutrition increased slightly by 0.2 percent to CHF 7.7 billion (US$7.8 billion).

Growth in China improved in the third quarter due to the good momentum of NAN and Illuma. Growth in the US remained generally subdued, while infant cereals performed well. The comprehensive re-launch of Gerber, including organic and natural ranges, began during September. Brazil declined as price adjustments were made to reflect local input cost deflation.

Outlook
Nestlé expects organic growth for the full year to be around the level of the nine-month period. The underlying trading operating profit margin for 2017 is set to improve by at least 20 basis points in constant currency, in line with company expectations. 

Nestlé’s structural savings initiatives are progressing faster than originally planned, leading to an additional increase of CHF 400-500 million (US$408-US$510 million) in restructuring and related expenses in 2017. As a result, the company’s trading operating profit margin will decrease by 40-60 basis points in constant currency and Nestlé expects underlying earnings per share in constant currency and capital efficiency to increase.