Swiss food giant Nestle has offered a positive outlook for future growth in the emerging markets, despite the region experiencing a continued economic slowdown.
The Kit Kat maker this morning (17 October) revealed slowing sales growth in the first nine months of the year, affected by ongoing weakness in Europe and the slowdown in the emerging markets.
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In Asia, Oceania and Africa, Nestle recorded growth of 6.9%, but the food group said “local conflicts and civil disturbances” had continued to disrupt several markets.
Speaking on the firm’s investor call, CEO Paul Bulcke suggested to analysts that the key to growth in the emerging markets was in ensuring a stable performance.
“I didn’t feel we had to turn a corner [in emerging markets]. What you see is a slowing down of growth. You have huge countries growing double-digit for many years and it’s showing over and again that you have to stabilise in order to have the capacity to have sustainable growth and when economies are growing at around 8%, I want to be a part of that.
“It’s about having continuous … consistent [growth]… I would actually see that positively.”
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By GlobalDataCFO Wan Ling Martello concurred that Nestle continues to grow in a “no growth environment” in Asia, Oceania and Africa. She added that the group was “determined” to benefit from growth in the “more dynamically developed” countries but also to grow in emerging markets. “We shouldn’t limit ourselves.”
She added: “With the slowdown in emerging markets, our continued focus on under-developed markets is perhaps becoming an even bigger differentiator.”
The outlook is different to that of its competitor, Unilever, which this month warned its underlying sales will come below its previous expectations in the third quarter amid the slowdown in emerging markets.
Turning to Europe, Laurent Freixe, executive VP for Europe was questioned about the group’s performance in the region. In Nestle’s nine-month results, the group revealed organic growth having edged up 0.9% in Europe where the group said it faced a “difficult” economic situation in central and eastern Europe and a continued “challenging” operating environment in southern Europe.
Freixe acknowledged “deflationary tensions” in the region, adding: “There is no growth in the marketplace so everyone is fighting for a share of the shrinking pie.
“What have we been doing is firstly ensuring we stay competitive at all times and protect our market share,” he told analysts. “We are making sure we capture the value of our brands in the eyes of the consumers and protect our gross margins.”
Freixe said he did not see any chance of the market picking up in the future. “The unemployment numbers … and taxation will affect results so it is most likely the market will remain subdued. When we look at the commodities we see some inflationary tensions building up … particularly in cocoa, and dairy is another one. We will make sure we stay price competitive and ensure value for the consumer. That will dictate our pricing going forward.”
Martello concurred, acknowledging the “weak consumer demand” and “deflationary pressures” of the zone but said Nestle had “outpaced” the market, achieving “strong” volume growth.
“What I can see is that our zone Europe management has refused to give in on the macro-economic issues. Innovation … increasing distribution of our products … this has resulted in a good market share performance.”
Despite the challenging operating environment, Nestle reiterated its full-year guidance and said it expects to deliver around 5% organic growth, together with an “improvement” in margins and underlying EPS in constant currencies.
Sanford Bernstein analyst Andrew Wood offered a relatively upbeat analysis of Nestle’s nine-month performance.
“After the ‘excitement’ of Unilever’s Q3 reduced sales guidance, Danone‘s Q3 sales miss and FY profit warning, and Nestlé’s disappointing YTD performance, Q3 sales were solid (and somewhat dull)…which is probably all that Nestlé’s shareholders were hoping for.
“Q3 organic growth (+4.9%) came in slightly below consensus (+5.0%) but slightly ahead of our expectations (+4.8%)…but the improvement from H1 should ease investor concerns about the business, as should accelerating RIG and pricing that increased from decade long lows in Q2.”
Nestle’s share price was up 3.06% to EUR63.90 at 12:15 GMT.
