Nestle Is the Latest Food Manufacturer to Be Hit By a Global Slowdown

October 20, 2016, 10:20 AM UTC
A sign of the world's biggest food company Nestle is seen at their headquarters on October 17, 2013 in Vevey. The turnover of the Swiss group Nestle, the world leader in food, increased by 4% over the first nine months of 2013 to 68.4 billion Swiss francs (57 billion euros). AFP PHOTO / FABRICE COFFRINI (Photo credit should read FABRICE COFFRINI/AFP/Getty Images)
Fabrice Coffrini—AFP/Getty Images

Nestle became the latest company to be hit by the global slowdown affecting food manufacturers after posting its weakest underlying sales growth in more than a decade.

The Swiss food giant on Thursday cut its outlook for the year, saying it now expected its full-year sales to rise by 3.5% after posting an increase of 3.3% for the first nine months. It previously said it expected full-year organic sales to rise by around 4.2%.

Its shares were indicated 1.7% lower in pre-market activity.

Like other food manufacturers, the maker of KitKat chocolate bars and Nescafe soluble coffee has been struggling with price deflation for its products in Europe amid fierce competition among supermarkets and weak commodity prices.

Tough conditions have also persisted in key markets like China and Brazil.

Rivals like Unilever have increased prices to compensate for currency weaknesses in some markets like Britain.

Nestle (NESTLE-S-A) said it continued to prioritize volume increases in what it described as a soft environment, but saw some improvement in pricing.

“In an environment marked by deflation and low raw material prices, we continued to privilege volume growth,” Chief Executive Paul Bulcke said in a statement. “Pricing remained soft but increasing.”

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Nestle’s 9-month sales rose to 65.51 billion Swiss francs ($66.19 billion) from 64.86 billion Swiss francs a year earlier, Vevey-based Nestle said. The figure lagged the average analyst estimate of 66.00 billion francs in a Reuters poll.

Analysts polled by Reuters had on average expected organic growth—which strips out the impact of acquisitions and currency swings—of 3.7%.

“Europe looks like it was under pressure during the quarter while China weakness is weighing on Asia despite the recovery in India,” said analyst Jon Cox at Kepler Cheuvreux.

“The cut in guidance is disappointing although all of the staples companies looked like they have had a tough quarter—they need to find relevance with consumers,” he added.

Unilever (UL) said its underlying sales increased 4.2% for the first nine months of 2016, supported by a 2.7% rise in pricing, when it published third-quarter results last week, while French rival Danone (GPDNF) this week posted a 2.1 increase in sales during its third quarter.

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