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Nestle cuts full-year outlook after sales miss
[VEVEY, Switzerland] Nestle, the world's largest packaged food company, lowered its full-year outlook on Friday, as a Maggi noodle recall in India knocked sales and undercalculated US Skin Health rebates weighed on the Swiss company's profits.
Sales dropped 2.1 per cent to 64.9 billion Swiss francs (US$68 billion) in the nine months through September, missing analysts'average forecast of 65.9 billion in a Reuters poll.
Organic or underlying growth, adjusted for currency swings, acquisitions and divestitures, slowed to 4.2 percent in the period from 4.5 per cent in the first half, sliding further behind its 5 percent target for 2015.
The company cut its 2015 outlook to around 4.5 per cent, below its long-term model calling for 5 to 6 per cent growth. "The shortfall comes from pricing, as Nestle does not seem to have been able to pursue its pricing actions as hoped, and more importantly the issue seems to be again the Asia, Oceania, Australia region, with sales down in the third quarter,"Barclays analysts wrote in a note.
Chief Executive Paul Bulcke said: "After a good performance in the first half of the year, we were impacted in the third quarter by exceptional events, with Maggi noodles in India and a rebate adjustment in Nestle Skin Health." Maggi noodles were subject to a recall in India over safety concerns.
In the United States, frozen food sales began improving after a revamp of Nestle's Lean Cuisine brand, but this contrasted with lagging sales in China, which showed a slower sales recovery, Bulcke said.
India's Maggi noodle recall continued to have a significant impact on growth in the South Asia Region, Nestle said.
In its Skin Health division, Nestle's US prescription drug rebates exceeded what it had set aside for this purpose, resulting in an additional one-off charge in the third quarter.
Despite prospects that Europe's hot summer would have consumers grabbing ice cream out of freezers, sales at the group's milk products and ice cream unit fell 350 million francs year-on-year to 11 billion. Water, however, achieved 7.1 organic growth through September, second only to confectionery at 7.8 per cent.
Nestle earlier this month confirmed it was in advanced talks to merge its international ice cream business with R&R Ice Cream, in its latest effort to refocus on other, higher-performing brands and advance its goal of becoming a"nutrition, health and wellness" company.
Unilever , the global number one in ice cream, on Thursday posted third-quarter underlying sales up 5.7 per cent, thanks in part to a strong summer. But the Anglo-Dutch group said it expected sluggish global markets to keep weighing on performance.
Nestle stock trades at around 21.4 times 12-month forward earnings, above Danone and Unilever, according to StarMine, which weights analysts' estimates by their track record.