Zurich: Food giant Nestle said it expects an improvement in sales and profitability in the second half of 2018 as it seeks to assuage activist shareholder Third Point, with its infant formula business helping second-quarter results.
Nestle’s net profit increased by 19 per cent to 5.8 billion Swiss francs (Dh21.45 billion) and earnings per share jumped by a fifth, helped by a one-off gain linked to the sale of its US confectionery business.
Packaged food groups have seen sales slow as health-conscious consumers switch to fresh, local foods.
Nestle has also come under pressure from New York-based hedge fund Third Point, run by investor Daniel Loeb, asking for a bolder and faster overhaul at the world’s biggest food group.
Solid growth in Europe and Asia and an improvement in the sluggish US market and in China as well as in infant nutrition led Nestle to better-than-expected sales in the second quarter.
It narrowed its guidance for 2018 organic growth to “around 3 per cent” from a 2-4 per cent.
“As we look towards the second half of 2018, we expect further improvement in our organic revenue growth. Margin improvement is expected to accelerate with further benefits from our efficiency programs and more favourable commodity pricing,” Mark Schneider, CEO of the maker of KitKat chocolate bars and Nescafe instant coffee, said in a statement on Thursday.
Organic sales growth that strips out currency swings and portfolio changes slowed less than expected to 2.6 per cent in the second quarter, from 2.8 per cent in the first quarter, beating forecasts for 2.2 per cent growth in a Reuters poll.
“Nestle’s improving measures are starting to kick in and materialise in both growth and returns development,” Vontobel analyst Jean-Philippe Bertschy said, adding that new products had helped accelerate growth in infant nutrition and petcare.
Kepler Cheuvreux analyst Jon Cox pointed to better-than-expected underlying earnings per share and strong cash flow.
Shares in the company, which have fallen almost 5 per cent this year, but are still trading at high multiples, were indicated to open 1.6 per cent higher.
Nestle’s sales by volume rose by 2.4 per cent in the second quarter, but prices rose by just 0.2 per cent as retail partners, under pressure from discounters and online rivals, fight to keep costs down.
The trading operating margin before restructuring costs rose to 16.1 per cent in the first half, as operational efficiencies offset higher commodity, packaging and distribution costs.
The company has set a 2020 target of 17.5-18.5 per cent target which Third Point has criticised as less ambitious than peer Unilever.
Unilever posted disappointing quarterly sales growth of 1.9 per cent last week, but said it expected growth to accelerate in the second half due to price rises.
