Nestle Could Miss Sales Target for Long Term

Nestle SA posted sales growth that was subdued and announced that it would come up short of an important benchmark for revenue growth for a fourth consecutive year, which underscores the tough environment for major consumer good businesses that are global.

Nestle, the owner of Puppy Chow pet food, Crunch candy bars as well as Nespresso coffee on Thursday said that its sales for the first three quarters of 2016 were CHF65.5 billion or $66.1 billion, which were up from the same time last year when they were CHF64.8 billion but slightly shy of analyst expectations.

The company’s organic sales, which take out effects of swings in currency and acquisitions, increased 3.3% from 2015. Nestle announced that it expects growth in organic sales of 3.5% during 2016, which is lower than its forecast previously of 4.2%.
Shares of Nestle were down 1% in early European trading on Thursday. One analyst said the revised guidance is not that big of a surprise, but is negative nonetheless for a stock that lives on a reputation for being diversified and defensive.

Failure to achieve in 2016 growth in organic sales of 5% to 6% would be the fourth consecutive year the company did not reach its goal for the long-term, which it calls its Nestle Model.

Nevertheless, CEO Paul Bulcke said Nestle would stick with its ambition of growth of 5% to 6%. Other giants in consumer products such as Danone SA and Unilever PLC have posted soft growth in sales of late.

The companies, just as with Nestle, face headwinds that include weaker growth globally, changing tastes by consumers and difficulty in increasing prices due to an environment of low inflation or even dropping prices referred to as deflation.
When inflation is subdued an unusual amount, or when there is a drop in consumer prices, consumers receive a boost through higher disposable income.

The opposite of that is when companies like Nestle rely a great deal on being able to increase their prices to create growth.
Nestle has been facing problems particularly with a Maggi noodles recall in India during 2015 along with weakness in its U.S. frozen foods business said the company on Thursday.

The company said Maggi continued gaining market share back and the comparative had turned favorable.
In an attempt to spur on growth, the company expanded its business of nutrition and health sciences this year as well.

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