Nestlé posts slight growth following sale of US confectionery division

Nestlé has registered a slight year-on-year growth in profits across its businesses, with sales figures of CHF 89.8 billion (€78bn) for 2017 against CHF 89.5 (€77.7bn) the previous year.

This was reflected in the Swiss-headquartered company’s confectionery division figures, which showed a marginal increase in revenues, recording 8.8bn CHF for last year, as against 8.7bn registered for 2016.

The company has just sold it US confectionery division to Ferrero for $2.8bn dollars, which had come under pressure over the past few years as consumers continue to increasingly favour more healthy snacks over sweets.

Its organic growth rate was 2.4% across the business, despite restructuring costs totaling around CHF 900 million, which have impacted on the company.

According to its outlook for 2018, sales are expected to increase in the region of 2-4%, which Nestlé said was in line with its target for 2020.

Mark Schneider, Nestlé CEO, said: “Our 2017 organic sales growth was within the guided range but below our expectations, in particular due to weak sales development towards the end of the year. Sales growth in Europe and Asia was encouraging, while North America and Brazil continued to see a challenging environment.

“Our cost reduction initiatives delivered margin improvement ahead of 2017 expectations, in spite of considerable commodity price increases. During the past months, we have completed initial portfolio adjustments with very favorable results. We will continue this active portfolio management approach in a disciplined manner and fully in line with our strategy. Regarding our core portfolio, accelerating our growth through product innovation and renovation is high on the agenda.

Organic sales growth is expected to improve in 2018 and we are firmly on track for our 2020 margin improvement target.”

In its assessment of the company’s performance, Euromonitor said that Nestlé’s number one position in the global packaged food market is achieved through its diverse food portfolio and wide geographic reach.

While the agency added that Nestlé has performed in line with its rivals, for confectionery the company had relied heavily on the US. As Euromonitor stated, an increasing number of shoppers are turning to snack bars instead of chocolate bars, with brands such as KIND, have innovated with sweet and salty flavours that satisfy sugar cravings but enjoy a healthier positioning.

Furthermore, manufacturers have innovated with products that incorporate dark chocolate, fruit, nuts or other ingredients that provide a more nutritious or lower-calorie indulgence. This has meant that new brands, such as Brookside, Snappers and bark THINS, have emerged as major new competitors.

María Mascaraque, food and nutrition senior analyst at Euromonitor International said: “In half-year results for 2017, Nestlé did not fully meet its expectations in terms of organic growth as pricing continues to be soft.

“However, in terms of category performance, coffee, waters and pet care showed solid performance and they are most likely to keep fuelling growth in full-year results. These three categories are at the top of Nestlé´s agenda. Conversely, confectionery performed negatively in the first half of the year, which is directly related to the decision to put Nestlé´s US confectionery business up for sale with Ferrero finally clinching the deal to buy the business in the US in January 2018.”

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