Global food group Nestle this morning (14 February) booked an increase in full-year profits but slowing underlying sales growth. The company also pointed to 2013 as looking every bit as “challenging” as 2012. Analysts gave a mixed view of the results.
Kepler Capital Markets analyst Jon Cox
“Backing out nine-month sales, Q4 organic sales growth appears a shade light of expectations at 5.3% (consensus 5.7%) while emerging markets remained somewhat fragile and appeared again to decelerate (8.9% vs. 9.3% in Q3). However, the operating margin recovered as expected. Operating cash flow CHF15.8bn amid improvements in result, working capital. In terms of regions, backing out nine-month figures, organic sales accelerated in Europe and AOA but appeared to decelerate in Americas.
“Overall, given the strong rally in the stock we would not be surprised to see some profit taking. The market is anticipating organic sales growth of close to 6% in 2013 and 2014, which might be somewhat ambitious.”
Bernstein Research analyst Andrew Wood
“In overview, we would term this reporting as slightly disappointing, generally below expectations across the board, and certainly not the strong outperformance we have come to expect from Nestlé over many years. Estimated Q4 organic growth (+5.3%) was slightly below our expectations (+5.5%) and consensus (+5.6%). As promised by management it did indeed show a recovery from the fairly weak Q3 (+5.0%), albeit only slight. However, perhaps most noticeable was the sustained relative weakness in Zone Asia, Oceania, Africa (+5.8%) which was well below expectations (+8.8%). Management had promised that the relative weakness in AOA in Q3 (+5.0%) was a “one-off” due to numerous external factors…but now has turned into a “two-off”.
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“Despite the slight Q4/H2 disappointment, Nestlé still fully met its 2012 target of the the Nestlé model of 5-6% organic growth with an improvement in trading operating profit margin and underlying EPS in constant currency. And it was no surprise that this target was reiterated again for 2013. We expect Nestlé to achieve all targets…we estimate +5.8% organic growth, +20bps of margin growth and +6% EPS growth.”
MainFirst analyst Alain-Sebastian Oberhuber
“The result comes as a slight miss on organic growth due to North America and Asia and EPS due to higher number of outstanding shares. We will not change our estimates, as expectations for FY 2013 look reasonable at the moment. We continue to favour Nestlé and Unilever (Outperform, PT EUR35.5) to Danone (Underperform, PT EUR46) based on stronger future organic growth rates. Nestlé trades at an EV/EBITDA 2014E of 11.4x and 10.4x excl. L’Oréal, vs. Unilever of 10.5x and Danone at 9.7x. However, after the strong share performance of Nestlé in the last three months, we believe that there will be some profit taken today and obviously a good buying opportunity.”