What the analysts say: Nestle's 2013 performance
Nestle booked a mixed set of full-year numbers today (13 February). The world's largest food group saw a drop in operating profit due to the cost of disposals and issued a cautious outlook for 2014. However, trading operating profit was up on improved margins and the company was able to shrug off some of the weakness it saw in the first half of the year. Analyst reactions have been equally mixed.
"Nestlé reported in-line FY 2013 results but expects a FY 2014 similar to the past year. This is below our as well as market expectations, in particular as H1 will be challenging. The company guides for a similar performance than the previous year. We downgrade the stock as we will reduce our earnings forecasts by round 3-5% due to lower organic growth... We conclude that the organic growth will be more at +4.5 to +5%, which is lower to the current +5.3% the market expects. Operating margins improvement should be around 10-20 bps as expected by the market due to volume growth to continue and the acquisition of Galderma, which could add around +10 bps to margins in FY 2014E. We think that consensus earnings 2014E could be downgraded by -3-5%. Based on the strong performance of the stock and no further divestment of the L'Oréal stake, which was the main driver of the recent Nestlé performance, we see only limited up-side potential to Nestlé's share performance." - Alain Oberhuber, MainFirst
"Nestlé said it expected a challenging 2014 but still aimed for 5% organic sales growth (consensus +5.3%) along with constant currency trading margin and EPS improvement. We note that emerging market growth (Q4 +10.8%) continued to accelerate from H1's nadir, and Q4 organic sales growth also was better (+5.2%). Overall, we expect the market to be somewhat disappointed by the absence of a buyback and a mute outlook, while earnings estimates may drift on negative currency developments. We confirm our Hold rating." - Jon Cox, Kepler Cheuvreux
"Overall it was a solid reporting, back to what we would expect from Nestlé...in-line or ahead on most major metrics. Guidance was fairly cautious for 2014, with an indication that performance will be back-end loaded. Top-line growth guidance of "about 5%" means organic growth will be at the bottom end, or slightly below, the Nestlé Model (5-6%)...but margins are expected to grow once again (ex FX). We consider that this is quite reasonable guidance in a still tough market environment (and both Unilever and RB gave similar guidance). More generally, Nestlé guided that 2014 will be similar to 2013...and if Nestle can repeat +4.6% organic growth, +20bps margin growth and +7% EPS growth (+11% in constant forex) we would expect investors to be happy. Overall, we expect investors to be pleased with the results and guidance, and the sense that Nestlé seems to be back on track after a slight operating lull." Andrew Wood, Sanford C. Bernstein
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