Nestle SA, the world’s biggest food company, cut its full-year forecast after nine-month revenue rose at the weakest pace in more than a decade, hurt by slowing growth in emerging markets and deflation in most of Europe and North America.
Revenue will rise about 3.5 percent on an organic basis, the Vevey, Switzerland-based maker of Nespresso coffee said in a statement Thursday, abandoning a goal for growth similar to last year’s 4.2 percent. Sales gained 3.3 percent on that basis in the first nine months of the year. Analysts expected an increase of 3.6 percent.
For several years Nestle and rival consumer-goods makers like Unilever and Danone have grappled with deflation across Europe that’s crimped their ability to raise prices. They’re now facing the opposite situation in emerging markets as rising raw material costs have forced them to hike prices of their goods in countries such as Brazil, repelling shoppers. The volatile markets will heap pressure on Nestle’s incoming Chief Executive Officer Ulf Mark Schneider.
“Pricing is one of the biggest problems,” said Alain Oberhuber, an analyst at MainFirst Bank AG. “The problem presents itself in Europe, in Brazil, in the U.K. Everything is softer, and they don’t seem to expects things to get much better.”
Sales growth in emerging markets slowed to 5.3 percent in the first nine months of the year from the 8.9 percent increase Nestle had in the full year 2015.
Unilever, which gets more than half its sales from emerging markets, last week reported its first drop in quarterly shipments since 2014 as price increases in countries like Brazil cut into volume. This week, Danone announced its slowest third-quarter sales growth in a decade and Reckitt Benckiser Group Plc narrowed its revenue growth outlook to the bottom of its forecast on waning demand in Russia.
Schneider comes from the medical industry and is expected to support Nestle’s shift towards nutrition and health. Nestle’s definition of organic sales growth excludes acquisitions, divestments and currency shifts.