(News Bulletin 247) – The agri-food giant is trading lower on the Zurich Stock Exchange after lowering its like-for-like growth projections for the current year, a closely watched market indicator for assessing Nestlé’s sales direction.

Nestlé on Thursday lowered its growth forecast for its sales in 2024 in the face of a rapid drop in prices in the first half of the year and pressure on consumers looking for cheaper products.

The group, which notably owns Nespresso coffee pods and Maggi broths, is now expecting organic sales growth of “at least 3%”, compared to around 4% previously targeted, which will have a cold shower on its stock market share.

Like its competitors, the Swiss group had recorded very high growth rates for three years as a result of price increases imposed to compensate for the high inflation of its costs.

“A period of transition”

But price increases slowed sharply in the first half, accounting for just 2% of its growth, it said in a statement, compared with 9.5% in the same period a year earlier. Its organic growth, a widely used indicator for tracking sales trends, therefore slowed to 2.1% in the first half, after rising to 8.7% in the first half of 2023.

“Out of caution,” Nestlé has therefore preferred to adjust its forecasts, declared its CEO, Mark Schneider, during a conference call. Because “with the wave of inflation now moderating very quickly,” the group is now in a “transition period,” he adds, where growth will be driven by volumes, and no longer by price increases.

The stock lost 4.47% to 89.38 Swiss francs, weighing on the SMI, the benchmark index of the Swiss stock market, down 1.25%.

Organic growth is a closely watched indicator for analysts to assess Nestlé’s sales, as its turnover is more likely to be distorted by exchange rate variations and acquisitions or disposals.

Weak consumer demand in the United States

In the first half of the year, its turnover contracted by 2.7% to 45 billion Swiss francs (47 billion euros), with negative exchange rate effects reducing it by 4.4%. Its net profit remained stable at 5.6 billion francs (5.8 billion euros).

This rapid slowdown in prices comes in a difficult consumer climate, particularly in North America where its sales of frozen products have declined in the face of “weak consumer demand” and “persistent price competition”, the press release details.

Consumers are “under pressure”, particularly among “low-income” households, acknowledged the Nestlé boss, who noted that many are on the lookout for cheap products in North America as well as in the major European economies or in China.

“It’s a period when consumers’ mood is rather muted,” he notes.

The cut in forecasts overshadowed a faster-than-expected recovery in volumes in the second quarter, up 2.2% after falling 2% in the first quarter.

“Cold shower”

In a stock market commentary, Jean-Philippe Bertschy, an analyst at Vontobel, noted in particular a “significant” acceleration in North America, “a key market”, he emphasizes. Volumes there rebounded by 2.8% in the second quarter, boosted by higher orders than usual from certain retailers ahead of promotional campaigns in July.

According to him, the downgrade of the growth forecast is a “cold shower”. “However, we believe that given the difficult and volatile environment, it is wise to provide a more realistic forecast,” he tempers.

Patrik Schwendimann, an analyst at Zurich Cantonal Bank, believes that Nestlé’s growth target was too ambitious and even says he is “surprised” that Nestlé did not do so earlier.

For Andreas von Arx, an analyst at Baader Helvea, these first-half figures are not, however, “the breath of fresh air” hoped for to revive the stock on the stock market.

Nestlé shares have been under pressure since the scandal over mineral water treatments in France and Switzerland and the publication of a report by Swiss NGO Public Eye on added sugar in baby food in low-income countries.

(With AFP)