Nestlé sales edge up in Q1, on target to grow by 2-4 percent this year

19 Apr 2018

19 Apr 2018 --- Nestlé has reported a “solid” start to the year with organic growth of 2.8 percent and sales edging up 1.4 percent to CHF 21.3 billion (US$22bn). The Swiss transnational food and drink giant says that excluding the US confectionery business which was divested at the end of March, organic growth was 2.9 percent. RIG (Real Internal Growth) accelerated to 2.6 percent and continued to be at the high end of the food and beverage industry, while pricing was 0.2 percent, largely reflecting lower levels of inflation in emerging markets.

Net acquisitions increased sales by 0.2 percent as the acquisition of Atrium Innovations was completed at the beginning of March. Nestlé initially announced the acquisition of the privately-held global leader in nutritional health products from a group of investors led by Permira Funds for US$2.3 billion in cash.

Foreign exchange had a negative impact of 1.6 percent, while all categories had positive growth, led by petcare, coffee and Nestlé Health Science.

“We are pleased to report a solid start to the year, with all regions contributing to our growth,” said Mark Schneider, Nestlé CEO. “Our volume growth improved noticeably while pricing remained soft.”

“We are encouraged by our innovation pipeline, continued progress with the implementation of our portfolio management strategy and our efficiency initiatives. Combined with the organic sales development, they put us on track for our 2018 guidance and our 2020 mid-term targets.”

Group sales
Organic growth was 1.2 percent with strong RIG of 1.6 percent, as sales momentum improved in the US. Pricing had a negative impact of 0.4 percent, reflecting price reductions mainly in Brazil.

Net divestments reduced sales by 0.1 percent and foreign exchange had a further impact of 5.3 percent. Reported sales in Zone AMS decreased by 4.2 percent to CHF6.8bn (US$7bn). The US business has returned to positive growth, driven by an improved performance in pet care, particularly in the natural segment and the e-commerce channel, says Nestlé, while there is also continued growth of Coffee Mate.

Earlier this year, Nestlé offloaded its US confectionery business to the Ferrero Group in an estimated US$2.8bn deal that bolsters the Italian company’s footprint in the American market.

The divestment allows Nestlé to concentrate on a range of growth categories including bottled water, coffee, frozen meals and infant nutrition. However, the company says the divestment, which came at the end of March, weighed on results for the quarter.

Meanwhile, the trading environment in Brazil continued to be challenging with soft consumer confidence and deflationary pressures. RIG was positive, but pricing remained negative, following the price reductions were taken in the second half of 2017. Other markets in Latin America sustained good momentum.

In Zone Europe, Middle-East and North Africa (EMENA) there was 2.2 percent organic growth: 2.6 percent RIG; -0.4 percent pricing. Western Europe posted positive RIG. Organic growth was impacted by negative pricing.

Central and Eastern Europe saw mid-single-digit organic growth, based on strong RIG. Middle East and North Africa improved to high single-digit organic growth, with positive RIG and pricing.

Organic growth of 2.2 percent was consistent with the level achieved over the past two years, driven by strong RIG of 2.6 percent. Deflationary trends in both Western Europe and Eastern Europe resulted in the negative pricing of 0.4 percent for the Zone.

Net divestments reduced sales by 0.1 percent, while foreign exchange had a positive impact of 4.2 percent.

Zone EMENA continued its solid growth with an acceleration in the Middle East but saw some softness in Western Europe. Central and Eastern Europe maintained mid-single-digit growth.

Strong RIG was a result of good growth in pet care, particularly in Russia, and in coffee, which benefited from the successful relaunch of Nescafé Gold in the UK. Infant formula and dairy performed well in the Middle East as well as Central and Eastern Europe.

Pricing pressure was broad-based across categories, mainly reflecting strong comparables in coffee following price increases were taken in early 2017.

In Zone Asia, Oceania and sub-Saharan Africa (AOA) there was 4.7 percent organic growth: 3.9 percent RIG; 0.8 percent pricing. China saw strong growth, boosted by the timing of Chinese New Year, while RIG and pricing were positive.

South Asia maintained good growth, and South-East Asia had solid results despite strong comparables. Nestlé says the growth in the South Asia region has been supported by innovations, particularly in Maggi and KitKat.

There was also high single-digit growth in Sub-Saharan Africa. Developed markets were positive, with good RIG and pressure on pricing.

Nestlé Waters
0.5 percent organic growth: -1.2 percent RIG; 1.7 percent pricing. North America with positive organic growth, driven mainly by pricing. RIG was slightly positive. Europe saw a soft quarter, with weak RIG and positive pricing. Emerging markets reported soft organic growth as China and Brazil had negative sales development.

Reported sales in Nestlé Waters decreased by 2.9 percent to CHF1.7bn (US$1.75bn). Growth was affected by inclement weather, impacting demand and distribution across Europe and North America. In the US, Nestlé launched sparkling water under its leading regional brands.

Emerging markets had weaker sales development, particularly in China and Brazil and the international premium brands, S.Pellegrino and Perrier, continued to be the key driver of Nestlé Waters worldwide, posting high single-digit growth.

Other businesses
The company reports 6.4 percent organic growth: 5.2 percent RIG; 1.2 percent pricing. Nespresso continued its good organic growth, with further acceleration in North America. Nestlé Health Science maintained mid-single-digit growth, driven by RIG. Pricing was slightly positive. Nestlé Skin Health also saw improved growth.

Outlook
Nestlé confirmed its full-year guidance for 2018 and expects organic sales growth between 2 percent and 4 percent and underlying trading operating margin improvement in line with its 2020 target. Restructuring costs are expected at around CHF 700 million (US$723 million) and underlying earnings per share in constant currency and capital efficiency are expected to increase.