Nestle SA share price steady, Q1 sales trail projections amid strong franc

Nestle SA reported on Friday a smaller-than-expected sales growth during the three months ended March 31st due to negative currency effects, suppressed consumer sentiment in developed markets and shifting consumer preferences in China. Performance, however, topped projections when stripping out exchange rate movements.

The Swiss company said that first-quarter sales rose to 20.918 billion francs, compared to 20.822 billion a year earlier, but trailing analysts projections for a jump to 21.3 billion francs. Currency exchange rates, particularly the strong franc, accounted for a 4.5% reduction in sales, while net acquisitions added 0.6%.

However, Nestle managed to beat projections for a 4.3% increase in sales on an organic basis, which strips out the effects of currency swings and acquisitions. Organic growth was 4.4%, composed of 1.9% real internal growth and 2.5% pricing.

The maker of packaged foods predicted in February full-year organic sales growth of about 5% and reaffirmed the outlook on Friday, projecting also improvements in margins, underlying earnings per share in constant currencies and capital efficiency.

“Our three-month sales growth was in line with expectations and driven by both real internal growth and pricing,” said Paul Bulcke, Nestlé CEO. “We delivered good performances in Zone EMENA, Nestlé Waters and Other businesses. We continued our efforts to restore momentum in Zone AOA and in North America, and expect these initiatives to gain traction throughout the year.”

Organic growth was at 2.5% in developed markets and 6.7% in emerging countries. Zone Asia, Oceania and sub-Saharan Africa saw a 0.2% drop in organic sales and a 2.3% decline in real internal growth, which the company attributed mainly to China and a slowdown in Nigeria. The company said measures to increase growth momentum are on track.

The newly organized Zone EMENA, which was formed by removing the Middle East and North Africa from AOA and adding them to Europe, contributed to overall performance with sales of 3.9 billion francs. All parts of the Zone delivered strong growth, Nestle said, with organic sales rising 5.3% and volumes jumping 3.9%. Analysts had projected sales of 3.74 billion Swiss francs.

Zone AMS (Americas) generated sales of 5.8 billion francs, with 3.7% organic growth and a 0.2% drop in volumes. Nestle said North America saw a slow start to the year as the frozen meals category remained challenged, but action towards the issue has been taken.

Organic sales at Nestle Waters surged 7.3%, while the Nestle Nutrition segment grew 4.3% and Other businesses registered an 8.1% jump in sales.

Nestle SA traded 0.20% higher at CHF 76.75 per share at 09:27 GMT in Zurich, marking a one-year increase of 14.13%. The company is valued at 245.08 billion francs. According to the Financial Times, the 24 analysts offering 12-month price targets for Nestle SA have a median target of CHF 73.50, with a high estimate of CHF 87.00 and a low estimate of CHF 61.50. The median estimate represents a -4.05 % decrease from the previous close of CHF 76.60.