Nestle sales growth hits seven-year low, hit by China slowdown

The maker of hundreds of household name brands including Kit-kat and Cheerios also warned of Brexit-induced price hikes in the UK as the pound remains weak

Nestle chocolate bars at its Swiss factory (Reuters)

Nestle, the world’s biggest food company, said deflation and a slowdown in China led to its weakest first-half sales growth in seven years.

The maker of hundreds of household name brands including Kit-kat and Cheerios warned of Brexit-induced price hikes in the UK as the pound remains in a relative slump after the 23 June vote.

“I’m confident we hit the bottom in the second quarter,” Francois-Xavier Roger, chief financial officer, said on Thursday. Nestle is “well-positioned” to reach its full-year forecast, he said.

Revenue increased 3.5 per cent on an organic basis in the first half, missing analysts’ expectations of 3.7 per cent growth. Nestle needs growth of about 5 per cent for the Swiss company to reach its full-year target of growth near last year’s level, which was 4.2 per cent, the CFO said.

While deflation will remain in western Europe, the outlook for other markets is better as some commodity prices have been increasing lately, according to Roger.

Nestle has been raising prices in Brazil and Russia ahead of planned increases in the UK.

Its stock rose as much as 1.3 per cent to 79.40 Swiss francs, approaching a record after initially declining in early trading in Zurich.

Paul Bulcke, Nestle’s outgoing chief executive officer, is on track to report sales growth below his average long-term target rate for a fourth year. Earlier this year, Nestle announced it didn’t expect sales growth to meet that goal, which is 5 per cent to 6 per cent.

In June, Nestle appointed Fresenius’s Ulf Mark Schneider as successor to Bulcke. He’s joining next month and will take the CEO role on 1 January. Schneider’s background is in the medical industry, supporting Nestle’s shift towards nutrition and health in a quest for faster growth.

Faced with more demanding consumers asking for fresh, healthy products, makers of packaged foods are reformulating recipes, cutting sugar, salt and fat. But Nestle are instead seeking solace in higher-margin “premium” products and health foods.

Kraft Heinz this month reported a 4.7 percent drop in second-quarter net sales and said it would try to improve the quality of its products to win over increasingly health-conscious customers.

To accelerate its push into high-margin health foods, Nestle recruited their new CEO from German healthcare group Fresenius, its first external hire in nearly a century.

© Bloomberg