Nestle SA’s revenue growth decelerated to the weakest pace in almost three years as consumers balked at higher prices from the maker of Purina petfood and Nespresso coffee.
(Bloomberg) — Nestle SA’s revenue growth decelerated to the weakest pace in almost three years as consumers balked at higher prices from the maker of Purina petfood and Nespresso coffee.
Revenue rose 6% on an organic basis in the third quarter, the company said Thursday, just missing analyst forecasts. A gauge of volume posted a fifth consecutive decline. The stock fell as much as 1.8%.
The miss on volume is is a key negative, wrote Molly Wylenzek, an analyst at Jefferies.
Nestle Health Science, which is supposed to be a driver of growth, was one of the worst-performing businesses, and the company delayed its 2025 goals for the unit by six months. Revenue from vitamins, minerals and supplements declined following an IT snarl in the US. Capacity constraints weighed on sales of Perrier bottled water, and the US market was challenging.
The sales growth is the slowest since the fourth quarter of 2020. Nestle shares have dropped 3.2% in the past month, partially on concern people taking medications like Wegovy might consume less food. GLP-1 drugs haven’t had an impact on sales, Chief Executive Officer Mark Schneider told reporters.
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Nestle reiterated its forecast of 7% to 8% organic sales growth this year. Schneider said in July growth should be at the upper end of that range.
The KitKat maker targets single-digit organic sales growth and an operating margin of 18% for Nestle Health Science, which makes products like Orgain protein powders and Vowst, capsules to prevent C. diff infections from recurring. The IT issue surfaced in August as Nestle consolidated its US packaging sites, and the constraints are expected to be resolved by early 2024.
Schneider said Nestle is benefiting from trimming its product portfolio and is spending more on marketing for brands that have sales exceeding 1 billion Swiss francs ($1.1 billion). That should help real internal growth, a gauge of volume, to turn positive in the fourth quarter, he said.
Nestle’s gross margin is continuing to recover, Schneider said.
Nestle temporarily shut down a factory in Israel following the attack by Hamas on that country.
“We’ve taken all necessary precautions,” the CEO said. “At this point, it’s too early to speculate on exactly what the business impact is going to be.”
The company said Wednesday it may cut 542 jobs and end infant-formula manufacturing and research operations in Wyeth, Ireland. Demand has been suffering from China’s slowing birth rate.
“Under these circumstances, it’s best to rebalance with our supply,” Schneider said.
–With assistance from Allegra Catelli.
(Updates with shares, analyst comment)
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