Nestlé and Danone show sluggish sales of food giants

Nestlé warned sales growth this year will be the weakest in at least two decades, giving activist investor Dan Loeb ammunition for his campaign to overhaul the world’s largest food firm, while Danone kept its 2017 goals despite a sales slowdown in the second quarter.

Food giants such as Nestlé and Danone — customers of Kerry Group — face increasing challenges to keep pace with changing tastes.

Nestlé’s organic revenue growth will be at the lower half of its 2% to 4% forecast, the maker of Nespresso capsules, Perrier, baby food, and Purina dog food said. Sales increased 2.3% in the first six months of 2017, missing analysts’ estimates.

Nestlé shares which were little changed have gained about 12% this year, valuing the food giant at €253bn.

It was “a semester to forget,” wrote Jean-Philippe Bertschy, an analyst at Bank Vontobel who added that all the key numbers worsened. Chief executive Mark Schneider is under pressure to turn around Nestlé after Mr Loeb revealed a $3.5bn (€3bn) stake last month, demanding asset sales and higher shareholder returns.

Pricing has been soft, said Mr Schneider, who is in his first year on the job and is set to unveil his strategy in two months.

The food industry has suffered recently as consumers shun packaged food they perceive as unhealthy.

French yogurt maker Danone also reported that sales barely grew in the second quarter as a revamp of the Activia brand flopped.

Danone shares rose 1.5%, valuing the company at €44.3bn.

Last week, Unilever reported it had no volume growth. The approach by Mr Loeb’s Third Point, as well as Kraft Heinz’s abandoned bid for Unilever, highlight the difficulties facing big food firms.

“Food companies will need to reinvent themselves, and a lot will have to change in the sector, especially in the developed markets like Japan, Europe and North America,” said Patrik Lang, head of equity research at Julius Baer. “That’s what we’re starting to see: Nestlé wants to invest more in the health trend, Unilever is developing more and more into a company that commits to personal hygiene and Danone is searching for its own identity,” said Mr Lang.

Bloomberg, Reuters and Irish Examiner staff


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