Nestle earnings weighed down by weak food pricing

GENEVA (AP) — Pressure on food prices globally weighed on the earnings of consumer goods giant Nestle, which on Thursday said it would step up its drive to cut costs.

The company based in Vevey, Switzerland, reported a 6 percent drop in net profit to 8.53 billion Swiss francs ($8.53billion), with double-digit declines at its Chinese unit dragging on growth. Revenue barely rose, by 0.8 percent to 89.47 billion francs.

CEO Mark Schneider said the company behind Maggi noodles, Stouffer’s frozen foods and KitKat chocolate bars plans to increase restructuring costs “considerably” this year. He did not specify how those costs would increase, but alluded to the company’s history of finding efficiencies when needed.

Nestle, which does not break out earnings by quarter, said that organic growth, which excludes the impact of acquisitions, rose 3.2 percent last year, at the low end of its expectations. It is expected to rise 2 to 4 percent this year.

Consumer goods companies have been squeezed in recent years by low inflation, which has prevented them from charging higher prices. At the same time, the costs of some raw materials have increased.

Pricing saw some improvement in late 2016, and is expected to get better this year, Nestle said.

“2016: I think the punchline was organic growth was, certainly, for our company at the higher end of industry,” Schneider told reporters. “But it did come in — there’s no beating around the bush — at the lower end of our expectations.”

Organic growth was strongest in the Americas, up 4.2 percent. Nestle rode currency devaluations in Latin America to increase prices there, with double-digit growth in KitKat and Nestle Dulce Gusto. It said performance in U.S confectionary was “disappointing,” though, citing competition and low growth in mainstream chocolate.

Nestle pointed to a “double-digit decline” of its Yinlu food unit in China, where the company has cited tough price pressures. “Several initiatives to turn around the business are in place and stabilisation is expected in 2017,” the Swiss company said.

The arrival of Schneider, a former health care industry executive and Nestle’s first CEO to come from outside the company in 95 years, has aimed to help move the food and drinks giant evolve into a nutrition, health and wellness business.

He cited “a time of change in the consumer goods industry” and said focusing on organic growth would be “the long-term value driver for our company.”

Schneider defended frozen foods as a core Nestle business, rejecting claims that they necessarily meant “bad” food. He also said its confectionary line didn’t conflict with Nestle’s increased focus on nutrition, saying people are “creatures open to indulgence.”

Nestle said its board will propose a dividend of 2.30 francs per share at its April annual general meeting.
Associated Press