Nestle earnings report missed estimates

Nestle cut its revenue target for 2013, after disappointing sales in Europe led the Swiss group to miss analysts’ expectations for the fourth consecutive quarter. The world’s largest food company by revenues said that in the six months to the end of June, sales added 5.3% to 45.2 billion Swiss francs ($49.1 billion). Analysts had expected 45.6 billion Swiss francs.

Nestle uses the so called organic measure which leaves out the effect of acquisitions and currency changes. According to the measure sales were up 4.1% in the first half.

This was short of the 5-6% rate that the company had previously forecast for this year, and hinted a slowdown from the first three months of the year, during which Nestlé registered 4.3% organic growth.The company now expects to achieve organic growth of “around” 5% over the course of the year.

Andrew Wood, an analyst at Sanford C. Bernstein, said that the quarter was “very disappointing on the top-line”. He noted that second-quarter organic growth of 3.9% was well below consensus forecasts for 4.8%. This was also “the lowest growth seen since the third quarter of 2009 . . . and pricing growth of 0.8% was the lowest for over a decade, since 2002”, he wrote in a note to clients cited by Financial Times.

Nestles sales were most sluggish in recession-covered Europe, where they grew just 1.7%. The Swiss group said consumers in the region were “extremely sensitive to price” and that it had been “responsive”, a stance which helped shave 10 basis points off its operating margin in the region.

Nespresso coffee capsules, one of Nestle’s largest brands, experienced a “sharp acceleration” and posted double-digit growth,the company said. First-half net income rose to 5.12 billion Swiss francs ($5.57 billion) from 4.94 billion francs.

Nestle’s CFO said that the Jenny Craig business is a “problem that must be fixed” and the company is addressing issues. The business, which closed operations in the U.K., is now mainly operating in the U.S. The company is also battling with a contracting market for diet foods such as Lean Cuisine and has introduced new products such as “Honestly Good” meals to overcome that.

The company is also facing difficulty in emerging markets, where growth in some countries slowed in the first half. The environment in Asia, Oceania and Africa remains “relatively buoyant even though there has been a slowdown in the last 18 months,” amid austerity measures in China and other cutbacks, Chief Financial Officer Wan Ling Martello said. Emerging markets have pushed up sales at the company’s water division, though.

Nestle shares retreated as much as 1.65 Swiss francs to 63.05 francs and traded down 2.4% at 63.15 francs at 12:23 p.m. in Zurich, diminishing the gain this year to 6%. Nestle voiced expectations of an improvement in margins and underlying earnings per share at constant rates of exchange in 2013.