Nestle scales back growth targets amid economic jitters

Last Updated: Thu, Feb 16, 2017 15:10 hrs
Nestle Nestle CEO Ulf Mark Schneider before for a news conference at the company headquarters in Vevey

VEVEY, Switzerland - Food group Nestle said it aimed for 2-4 percent underlying sales growth this year after net profit fell and sales rose less than expected in 2016, hit by slowing emerging markets and a deflationary environment.

"Two to four percent reflect the macroeconomic uncertainty ... this is a volatile and still somewhat deflationary environment... we felt this was wise and prudent," new Chief Executive Ulf Mark Schneider, who took over on Jan. 1, told reporters at the company's headquarters.

"But I also wanted to express my confidence that we can get back to mid-single-digit growth by 2020," he said, adding he expected pricing to improve this year.

Nestle will step up cost savings to boost profitability and replaced its "Nestle model" of 5-6 percent underlying sales growth with a new mid-term goal of "mid-single-digit organic growth and significant structural cost savings by 2020".

Nestle said it would increase restructuring costs to around 500 million Swiss francs ($498 million) this year and so expected a stable trading operating profit margin in 2017.

Net profit at the maker of Kitkat chocolate bars and Nescafe instant coffee fell to 8.5 billion francs last year, well short of the average estimate for 9.59 billion francs in a Reuters poll of analysts, hit by a one-off non-cash adjustment to deferred taxes.

Shares in Nestle were indicated to open 2.3 percent lower based on pre-market activity.

Underlying "organic" sales growth slowed to 3.2 percent from 4.2 percent in 2015, missing the now outdated target of 5-6 percent growth for the fourth year in a row and also a 3.4 percent average estimate in the Reuters poll.

Growth in emerging markets, previously the growth driver, slowed to 5.3 percent from 7.0 percent a year ago.

Emerging markets spoilt the picture for peer Unilever that last month reported lower-than-expected fourth-quarter sales amid problems in India and Brazil, while Danone said on Wednesday tough conditions in China would endure in 2017.

($1 = 1.0038 Swiss francs)

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