NSRGY Nestle SA (PK)

By Brian Blackstone 

ZURICH -- Sluggish U.S. demand limited Nestlé SA's sales growth to its slowest pace in decades last year, underscoring the challenge facing the Swiss consumer goods giant as it tries to reposition itself as a nimble provider of healthy food and drinks.

Nestlé also said it is considering selling its Gerber Life Insurance business, continuing a string of changes to its sprawling portfolio, and said it doesn't plan to raise its stake in cosmetics giant L'Oréal SA. Nestlé didn't say whether it would consider reducing its stake.

Nestlé said that organic growth, which strips out the effects of currency changes, acquisitions and divestments, came in at 2.4% in 2017. That was below last year's pace of 3.2% and the weakest since at least the mid-1990s when Nestlé started tracking that indicator.

A worrying sign: sales growth was weak at the end of last year, a time when the global economy seemed to be perking up. Meanwhile, U.S. organic revenues fell slightly last year despite low unemployment and healthy economic growth.

Asked about this disconnect in Nestlé's biggest market, Chief Executive Mark Schneider said the usual transmission from a strong U.S. economy to rising consumer spending has been delayed. "When that updraft sets in, we're really in a good spot," he said.

Brazil was also challenging, Mr. Schneider said, while sales growth in Europe and Asia "was encouraging."

Nestlé expects overall organic growth between 2% and 4% this year, and said it was on track to achieve its 2020 operating margin target.

Its shares were down 2.3% in early European trading.

Total sales were 89.8 billion Swiss francs ($96.9 billion), up 0.4% from 2016 and slightly below analyst forecasts of 90 billion francs. Its net profit was 7.2 billion francs, down 15.8% from 2016 and well below expectations.

The earnings report may raise pressure on Nestlé from investors to take more dramatic steps to improve its financial performance. Activist investor Daniel Loeb's Third Point LLC has been pressing for bold steps for many months, and while Nestlé has made many changes, Mr. Loeb has signaled he wants them to go further.

The full-year results were the first for Mr. Schneider, who took the helm as CEO at the start of last year after running a German health-care company. Nestlé missed a longstanding target of 5% to 6% organic growth for four-straight years through 2016, and one of Mr. Schneider's first big moves was to ditch that target one year ago.

Like other consumer goods companies, Nestlé has struggled with a mix of weaker growth in the world economy, deflationary pressures that made it hard to raise prices and aging populations. These have coincided with changing consumer tastes toward locally grown, organic food and away from mass-produced prepared meals that have long been a staple for the maker of Stouffer's frozen dishes and Lean Cuisine.

Last year was an active one for Mr. Schneider, the first CEO chosen from outside Nestlé's ranks in nearly a century. Last summer, facing pressure from Mr. Loeb to improve its financial performance, Nestlé announced a 20 billion franc share buyback and said it would orient its capital spending toward high-growth parts of its business, like pet care and coffee. It also set a formal profit-margin target.

It also made relatively small-scale U.S. acquisitions in areas outside its longstanding bread and butter of mass-produced packaged foods, including plant-based food maker Sweet Earth and a majority stake in premium coffee chain Blue Bottle.

It expanded its push into consumer health care by acquiring a Canadian vitamin maker.

Nestlé's highest-profile move has been the sale last month of its U.S. candy business that includes Butterfinger and Baby Ruth brands to Italian candy maker Ferrero International SA for $2.8 billion. That division was a drag on U.S. organic sales last year, Mr. Schneider said.

The life-insurance business that Nestlé is putting up for sale was part of its acquisition of Gerber from Novartis in 2007, and the unit generated 2017 sales of 840 million francs. Nestlé said it was "fully committed" to Gerber's baby-food business.

Although many of these steps mirrored Mr. Loeb's recommendations, the activist investor has signaled he wants Nestlé to consider more changes, including selling its skin-health business and its large stake in cosmetics giant L'Oréal.

Nestlé also said it expects the recently enacted U.S. tax overhaul to shave about 300 million francs a year from its U.S. corporate-tax expenses.

--Anthony Shevlin contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

February 15, 2018 04:45 ET (09:45 GMT)

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