Nestle pushes back sales growth targets on slower China growth

Revenue slowed before coronavirus outbreak

Nestle pushed back its target for sales growth as revenue from China slowed even before the outbreak of the novel coronavirus in the Nescafe maker's second-largest market.

Nestle will need one or two more years to return to increases of 4 per cent to 6 per cent, chief executive Mark Schneider told journalists at the Nespresso maker's headquarters in Vevey, Switzerland Thursday. Revenue climbed 3.5 per cent on an organic basis in 2019, just short of analysts' estimates as the bottled-water business had its worst performance in a decade.

“With what we know now, in February 2020, it wouldn’t have been correct to say, ‘we’ll make the 4.0 per cent,’” Mr Schneider said. “We’re giving ourselves more time.”

The only market that's bigger than greater China for Nestle is the US. The food company gets 8 per cent of total sales from that region in Asia. Most of Nestle's 30 factories in China have reopened this week, though they're operating at reduced capacity. Nestle said it's too early to quantify the impact from the coronavirus.

Restructuring costs and other trading expenses tripled to 2.6 billion francs (€2.4 billion) as Nestle wrote down the value of the struggling Chinese brand Yinlu. Schneider said Yinlu is trying to shift to products such as ready-to-drink coffee as its main category, peanut milk, declines in popularity.

In an interview with Bloomberg TV, Schneider signaled Nestle has an appetite for purchases after last year was “light on the acquisition front.”

The company bought and sold assets that have revenue of about 12 per cent of its total sales in the past three years. Mr Schneider said he expects a similar amount over the next three years.

Nestle could raise funds for an acquisition by selling its stake in French cosmetics company L’Oreal, Mr Schneider said, declining to say when it could happen.

“We are not day-trading,” he said.

The company reached its target for margin improvement one year early, thanks to cost-cutting.

Previously, Nestle forecast reaching mid-single-digit sales growth in 2020. – Bloomberg