Weak sales raise pressure on Nestle boss to speed up overhaul

Nestle trimmed its 2017 sales forecast to what would be its weakest growth in 20 years, adding fuel to calls on chief executive Mark Schneider to speed up a turnaround of the world`s largest food group.

Since taking control of the maker of KitKat bars and Nescafe coffee in January, Schneider has faced calls to improve its performance, led by activist investor Daniel Loeb, whose U.S. hedge fund disclosed a $3.5 billion stake in June.

Nestle has been cutting costs, making small-scale investments in health science companies and last month announced a large share buyback plan in an effort to boost returns.

Global food companies have been battling slowing sales as consumers` tastes change, and Nestle has been accused of responding more slowly than peers such as Unilever and Danone, which have bought faster-growth companies with products aimed at health-conscious millennials.

Nestle reflected these difficulties on Thursday when it said it expected 2017 sales growth to be "in the lower half" of its 2 to 4 percent target range.

The company`s organic sales growth has slowed over the last four years, leading to Schneider scrapping a long term target of 4 to 5 percent growth. A slowdown to the bottom half of 2 to 4 percent would be Nestle`s weakest growth in more than 20 years.

Nestle said its organic sales, which includes volume and price increases, grew by 2.3 percent in the first half, the same rate as the first quarter, trailing analyst estimates of 2.8 percent and slowing from 3.5 percent a year earlier.

Schneider, who is expected to unveil more of his strategy at an investor day in September, said he was disappointed.

"Organic growth in the first half did not fully meet our expectations ... While volume growth remains at the high end of our industry, pricing continues to be soft," he said.NO MAGIC WAND

Although Nestle`s first-half net profit rose 19 percent to 4.9 billion Swiss francs ($5.16 billion), beating a 4.83 billion franc average estimate in a Reuters poll, its shares lost 1 percent as analysts saw the results as weak.

"It shows you that CEO Mark Schneider has a lot of work to do and there isn`t a magic wand in terms of getting the top line going," Jon Cox from Kepler Cheuvreux said.

Nestle Chief Financial Officer François-Xavier Roger declined to say whether pricing -- which increased by 0.9 percent in the first half -- would pick up this year.

"We are cautious. Part of it is linked to commodity prices and because of the high volatility there we need to be cautious," he said.

Nestle had raised prices in Europe for products like coffee, but this had reduced sales volumes, Roger told reporters.

He declined to comment on any dialogue with Loeb`s Third Point, which has urged management to set a margin target of 18 to 20 percent by 2020, buy back shares, sell non-core businesses and exit French cosmetics giant L`Oreal.

Although Schneider has made some changes, including putting Nestle`s U.S. confectionery business under review, Loeb, who was not immediately available for comment, and others say the company is moving too slowly.

Since Loeb disclosed his stake until Wednesday, Nestle shares had gained 0.3 percent, although the stock was trading 0.8 percent lower on Thursday.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)

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