Nestle forecasts sales growth in 2014 near low end of target

Nestle SA, the world's largest food company, forecast growth near the low end of its target in 2014 after reporting the smallest annual sales advance in four years amid sluggish spending and lower prices in developed markets.

Revenue will rise about 5 percent this year excluding acquisitions, disposals and currency shifts, with the second half stronger than the first, the Vevey, Switzerland-based KitKat maker said today. That's after the company met analysts' estimates with a 4.6 percent advance on the same basis last year, the weakest result since 2009's 4.1 percent rise.

The 5 percent forecast was below estimates for growth of about 5.3 percent, based on a company-compiled consensus. After a challenging 2013, this year "will likely be the same," Chief Executive Officer Paul Bulcke said in a statement, pointing to weakness in Europe and North America. The overall performance will be "similar to last year," he said.

The sales forecast is "a little underwhelming" and "not the Nestle Model," Exane BNP Paribas analyst Jeff Stent said in a note today, referring to the food maker's goal for average 5 percent to 6 percent organic growth over the long-term.

The company said it's keeping those targets, though this year organic sales growth will be near the low end of the range. The average over the past 10 years has been 6.1 percent.

Nestle fell as much as 2.2 percent in Zurich trading and was down 1.6 percent at 66 Swiss francs as of 11:50 a.m. The stock is little changed this year.

2014 Performance

Speaking at a press conference in Vevey, Bulcke said Nestle has no plan to further reduce its stake in L'Oreal SA after this week's agreement to sell part of its holding in the cosmetics maker for 6 billion euros ($8.2 billion). A share buyback to be funded from the proceeds will be announced "soon," the company said. Analysts including Exane's Eamonn Ferry expect Nestle to gradually sell its entire L'Oreal stake and make acquisitions.

Europe, which Nestle called a "no-growth environment," is not getting any better, Bulcke said at the press conference. His comments were at odds with recent signs of recovery. The euro zone has expanded for three quarters in a row.

Nestle experienced "material negative pricing" in Europe from passing on lower ingredient costs to consumers buying its Moevenpick ice cream and pet food. So-called trading operating margins in the region narrowed by 0.4 percentage point to 15 percent on a 0.8 percent boost in sales.

Emerging Markets

Profit margins also contracted in the Americas, narrowing by 0.5 percentage point to 18.2 percent amid what Bulcke described as a "price war" in U.S. bottled water. Sales in the region rose 5.3 percent as Nestle boosted marketing for its DiGiorno frozen pizzas and new Butterfinger peanut-butter cups. In Asia, Oceania and Africa, sales rose 5.6 percent.

Nestle's sales in emerging markets last year rose 9.3 percent, faster than the 8.8 percent clip after nine months, fueled by "strong" results in Africa, the Middle East and Indonesia. Also helping results was the company's nutrition unit, whose 8.2 percent sales uptick exceeded analysts' 6.9 percent estimate. Infant nutrition sales rose by more than 10 percent in Asia, Africa and Brazil, the company said.

"Nutrition is very strong," Exane's Stent said.

Nespresso sales growth was similar to previous years, advancing by 500 million Swiss francs ($560 million) amid increasing competition from copycat capsules, Nestle said.