Strategy

Nestle Misses Estimates With 2017 Outlook

"This is a volatile and still somewhat deflationary environment," the food company's new chief executive tells reporters.
Matthew HellerFebruary 17, 2017
Nestle Misses Estimates With 2017 Outlook

Nestle reined in its growth outlook for this year after reporting disappointing results for 2016, with profit declining about 6%.

The world’s largest packaged food group reported annual sales of 89.5 billion Swiss francs, up just 0.8% year-ago levels, and organic growth of 3.2%, consisting of pricing benefits of 0.8% and real internal growth of 2.4%.

Net income fell to 8.88 billion Swiss francs and the resulting adjusted earnings of 3.40 Swiss francs per share were slightly below the consensus forecast among investors.

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“Our 2016 organic growth was at the high end of the industry but at the lower end of our expectations,” Nestle’s new chief executive, Mark Schneider, said in a news release. “We saw a solid trading operating profit margin improvement and our cash flow grew significantly.”

The company’s emerging markets organic growth rose 5.3%, compared to just a 1.7% gain in the developed part of the world. The Europe, Middle East, and North Africa segment suffered from intense competitive conditions in Western Europe and low commodity prices that hurt Nestle’s ability to sustain pricing power.

“Consumer goods companies have been squeezed in recent years by low inflation, which has prevented them from charging higher prices,” Reuters noted. “At the same time, the costs of some raw materials have increased.”

For 2017, Nestle is now projecting organic growth between 2% and 4%, below analysts’ estimates and the “Nestle Model” for growth of 5% to 6%.

Schneider said the lower target reflected economic uncertainty. “This is a volatile and still somewhat deflationary environment,” he told reporters at the company’s Swiss headquarters. “We felt this was wise and prudent.”

As The Associated Press reports, the new CEO was hired to help Nestle “evolve into a nutrition, health and wellness business.” He said the company is continuing to “invest in future growth and operating efficiency, targeting mid-single digit organic growth and significant structural cost savings by 2020.”