Nestlé reports lower than expected full-year results for 2017

SWITZERLAND – Swiss food giant Nestle has reported its full year results for 2017, reporting a 2.4% organic growth, below expectations, as the new CEO Mark Schneider reported the results after his first year in charge of the company.

Weak sales growth in North America and Brazil were largely blamed for the company’s slower growth, but the company reported increased sales growth in all categories despite its missing of its guidance sales growth target.

The company’s total reported sales increased by 0.4% to US$97.3billion from US$96.7 billion in 2016, while net divestments had a negative impact of 1.9%, mainly due to the creation of the Froneri joint venture, says Nestle.

The company’s underlying trading operating profit margin was ahead of expectations, up 0.5% in constant currency and up 0.4% on a reported basis to 16.4%.

Trading operating profit margin decreased by 60 basis points on a reported basis to 14.7%, in line with their October 2017 expectations, which included a US$975.2 million increase mainly in restructuring and related costs to US$1.63 billion.

The company’s margin expansion was supported by operating efficiencies and successful execution of on-going restructuring initiatives, says the company.

“Our 2017 organic sales growth was within the guided range but below our expectations, in particular due to weak sales development towards the end of the year.

Sales growth in Europe and Asia was encouraging while North America and Brazil continued to see a challenging environment,” said the CEO.

Mark says that the company’s improvement in the underlying trading operating profit puts it on track to meet the 2020 target of mid-single digits range.

These cost savings largely offset the increase in commodity costs of around US$975.2 million.

Restructuring expenditure and net other trading items also increased by US$975.2 million to US$1.63 billion due to the acceleration of restructuring projects, which resulted to trading operating profit decreasing by 3.4% to US$14.3billion.

Nestlé also announced Board decisions regarding the Gerber Life Insurance business and the L’Oréal investment.

The company intends to sell the Gerber Life Insurance business it acquired as part of its deal to take over Gerber from Novartis in 2007.

However, it will retain the Gerber infant nutrition business within the recently revamped infant nutrition portfolio.

The company will not renew its long established agreement with the Bettencourt family for its stake in French personal care maker L’Oréal.

“In order to maintain all available options for the benefit of Nestlé’s shareholders, the Board of Directors has decided not to renew this agreement.

We do not intend to increase our stake in L’Oréal and are committed to maintaining our constructive relationship with the Bettencourt family,” says the company.

“Our cost reduction initiatives delivered margin improvement ahead of 2017 expectations, in spite of considerable commodity price increases.

According to Mark, the company has completed initial portfolio adjustments with very favorable results and will continue with its approach in a disciplined manner and fully in line with our strategy.

Accelerating the company’s growth through product innovation and renovation will be high on the agenda of the company as it seeks to reach its growth targets in 2018 and forward.

“Organic sales growth is expected to improve in 2018 and we are firmly on track for our 2020 margin improvement target,” added Mark.

Nestle experienced different levels of organic growth in the different zones, with Zone Americas (AMS) showing subdued and decelerated growth in the second half of the year.

The region realised 0.9% organic growth while North America saw slightly negative organic growth with positive pricing, said Nestle.

Organic growth in Latin America decelerated due to lower pricing in Brazil.

Excluding the confectionery business, growth in the United States was flat, reflecting soft consumer demand and challenging category dynamics.

In the EMENA, growth increased following a significant improvement in the second half of the year, with two consecutive quarters in excess of 3%.

This was largely driven by strong results in petcare and coffee.

Zone Europe, Middle-East and North Africa (EMENA) had 2.3% organic growth: 1.7% RIG, 0.6% pricing.

Western Europe maintained positive organic growth with balanced contributions of RIG and pricing.

Central and Eastern Europe achieved mid-single-digit organic growth, while Middle East and North Africa saw mid-single-digit organic growth, with operating profit margin growing 0.8% to 18.1%.

Zone Asia, Oceania and sub-Saharan Africa (AOA) saw its highest growth in four years, recording 4.7% organic growth, with China returning to positive growth,  despite difficult comparables in the fourth quarter due to the timing of Chinese New Year.

The South-East Asia and South Asia maintained good organic growth, while sub-Saharan Africa saw strong double-digit growth in the year.

Nestlé nutrition had 1.1% organic growth, with underlying trading operating profit margin decreasing by 0.1% to 23%.

Nespresso posted good organic growth, with sustained mid-teen momentum in North America.

The food, nutrition and wellness company has released the results in a year in which it has been under pressure to increase its sales growth figures and in turn profitability of its operations.

The company has in 2017 made a number of acquisitions, including that of Canadian supplier of nutrition health products Atrium for US$2.3 billion, as it delves deeper its its strategy of focusing its attention to parts of its business with faster, profitable growth which include its infant nutrition, pet care and coffee businesses.

Atrium’s deal joined other significant acquisitions of Blue Bottle Coffee, Chameleon and Sweet Earth that were closed during the year.

The company also divested its confectionery business in the US to Ferrero as it seeks to be a more focus its US business away from products consumers perceive to be unhealthy in the country.

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