Nestle facing soft consumer demand in U.S.

by Monica Watrous
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Nestle frozen foods and coffee creamer
In the United States, Nestle's coffee creamers and frozen food maintained solid momentum.

VEVEY, SWITZERLAND — Nestle S.A. in the first three months of the year delivered sales growth in line with expectations, despite facing soft consumer demand in North America and a shift in the timing of holidays, said Ulf Mark Schneider, chief executive officer. On a reported basis, the company recorded total sales of 21 billion Swiss francs ($21.03 billion), up 0.4% from 20.9 billion Swiss francs in the year-ago period. Excluding the impacts of foreign exchange, acquisitions and divestments, organic growth was 2.3%, which is in line with the company’s full-year guidance range of 2% to 4%.

Ulf Mark Schneider, Nestle
Ulf Mark Schneider, c.e.o. of Nestle

“Given the challenging calendar this quarter, it was clear that the start to the year 2017 would be subdued,” Mr. Schneider said during an April 20 earnings call. “Under the circumstances, we were pleased with our (organic growth) of 2.3%. Please note that the calendar affected different categories in a different way. Our large confectionery category was impacted stronger than others by the early timing of the Chinese New Year and the late timing of Easter.”

In Zone Americas (AMS), sales were 6.4 billion Swiss francs, with organic growth of 0.4%. In the United States, coffee creamers and frozen food maintained solid momentum while confectionery declined. Ice cream produced mixed results.

Nestle ice cream - Dreyer's and Haagen Dazs
Häagen-Dazs delivered positive growth for Nestle, while Dreyer's was negative.

“For ice cream in the U.S., we had slightly negative organic growth with different momentum by category,” said Francois-Xavier Roger, chief financial officer. “We had positive growth with Häagen-Dazs and snacks. Dreyer’s was negative… We gained in terms of market share in snacks, but we lost on the premium side.”

In Zone EMENA (Europe, Middle East and North Africa), three-month sales were 4 billion Swiss Francs. Organic growth was 1.7%. Western Europe grew slightly on an organic basis, while Central and Eastern Europe achieved mid-single-digit organic growth, North Africa performed well, and the Middle East declined on persistent deflation and political instability.

In Zone AOA (Asia, Oceania and Africa), fiscal-year sales were 4 billion Swiss francs. Organic growth was 4.5%, driven by strong performances in Southeast Asia, India and sub-Saharan Africa. The earlier timing of the Chinese New Year challenged results in China.

Nestle water
Nestle Waters sales were 1.8 billion Swiss francs with organic growth of 3.1%.

Nestle Waters sales were 1.8 billion Swiss francs with organic growth of 3.1%.

“The growth that we experienced in water is largely volume-based as competitive intensity limits pricing, mainly in developed markets,” Mr. Roger said. “Nestle Waters grew in all regions, also with some deceleration, partly because of challenging comps last year. In the U.S., which is our largest market, we delivered low single-digit growth despite negative pricing.”

Nestle Nutrition sales were 2.6 billion Swiss francs with organic growth of 1.1%. The company’s Other Businesses segment produced sales of 2.3 billion Swiss francs with organic growth for 5.8%.

Nestle Nespresso coffee
Nespresso delivered mid-single-digit organic growth.

“Looking more specifically at Nespresso, we had mid-single-digit organic growth, fueled by double-digit growth in North America,” Mr. Roger said.

In the year ahead, the company plans to increase restructuring costs to drive profitability.

“As a result, we expect to reach a stable trading operating profit margin in 2017 … and we expect as well to achieve underlying e.p.s. growth and improved capital efficiency,” Mr. Roger said. 
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