On the money: Nestle sees North America trend improvement

By Michelle Russell | 18 October 2012

In the Americas region, Nestle said the trading environment remained “subdued”

In the Americas region, Nestle said the trading environment remained “subdued”

Nestle has said it is seeing positive trends resulting in market share gains in North America, where depressed consumer sentiment has proven problematic for the Swiss food giant through the beginning of this year. 

Nestle this morning (18 October) saw its share price fall as much as 2.1% in early trading as it reported a number of one-off hits that dented the bottom line. 

In the Americas region, Nestle said the trading environment remained "subdued", reflecting the "tough" economic conditions and "low consumer confidence".

Sales, however, were up 9.2% to CHF20.89bn (US$22.64bn) and the region reported organic growth of 5.5% and real internal growth of 0.4%.

The frozen meals and pizza categories continued to decline but the share performance from Stouffer's and Lean Cuisine improved and recent launches in pizza continued to perform well, Nestle said.

Speaking on the firm's earnings call this morning, Roddy Child-Villiers, the company's head of investor relations, told analysts that, with the exception of waters and nutrition, all its shares were "up or on an improving trend" from having being negative in North America.

"Broad based our share is improving. Looking at the categories individually, in the frozen aisle the category remains weak, but we are seeing improving trends and we also have some big innovations in the frozen meals and pizza businesses coming through at the end of the year and into next year. We need innovation to bring some growth and consumer excitement back into these categories. We are also working on a broad communication strategy, category-specific, addressing perceptions about the relative healthiness of frozen against fresh. Hopefully that will impact categories as well."

Child-Villiers said the Americas had seen an improvement in RIG during the first nine months of the year and this was expected to continue into the final quarter.

In Europe, he told analysts Nestle was seeing much the same picture as its rival Danone, which yesterday said it had faced a "swift deterioration in consumption" in Southern Europe and predicted continued weakness in the region.

Nestle's organic growth in Europe, which is struggling with a debt crisis, slowed to 1.9% from 2.4%.

Nonetheless, Child-Villiers sounded a more optimistic note than its rival, adding that Nestle was not seeing "dramatically negative numbers" in the region.

"Organic growth is down due to pricing easing. The quarter is also short one shopping day, which had an impact on organic growth," he told analysts. "In Western Europe we are seeing good momentum in coffee and ice cream.

He revealed that while Germany has been "tough" all year and will continue to be, he said France has been "more resilient". Austerity measures in the country, however, "could be a risk going forward", he added.

"The UK is also growing well with confectionery and soluble coffee both contributing. Russia has continued its positive momentum ... and coffee and ice cream are both performing well."

"In Portugal we saw a slight slowdown in the nine months relative to the first half and in Spain we are consistent with our competitor in that comment. But in Spain, a highlight there is coffee which is still doing well despite a very premium offer."

Separately, Child-Villiers reiterated that Nestle sees input costs easing in the second half, but added that any pressure is likely to be seen in infant nutrition and pet care with an increase in grain prices.

Nestle maintained its full-year outlook of 5-6% organic sales growth, despite the tough trading conditions.

Kepler Capital Markets analyst Jon Cox said "weaker than expected" organic sales growth may dent Nestle's stock somewhat given it is seen as "the safest bet in food, if not in Europe".

Nestle's share price was down 2.2% to CHF60.90 at 12:36 BST today.

Sectors: Baby food, Confectionery, Dairy

Companies: Nestle, Danone

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