Nestle Sales Growth Sputters on US Slump, Vitamin Snags

(Bloomberg) — Nestle sales growth sputtered in the first quarter as the maker of Nespresso coffee was hit by cooler demand in North America and supply constraints at its vitamins unit.

Sales rose 1.4% in the period on an organic basis, the Swiss company said Thursday, about half the estimate of analysts. Its real internal growth rate — a key measure of volumes — fell by a greater-than-expected 2%, although the company predicted a rebound in the second quarter.

Consumer goods groups like Nestle and Unilever Plc have been trying to win back market share with brand name products after soaring inflation drove overstretched consumers to cheaper store brands. 

Unilever’s results on Thursday, like Danone’s and Reckitt Benckiser Group Plc’s earlier in the week, suggest that shoppers are starting to move back to big brands. Nestle’s figures, however, indicate the Swiss giant may be an outlier from this trend.

Nestle shares fell as much as 4.8% in early Swiss trading, the biggest decline in two months. 

Frozen Pizza

Soft consumer demand and fierce price competition in the US hit frozen food, including pizza, and organic sales contracted by 2.5% in North America overall, Nestle said. Health science slumped as vitamins, minerals and supplements posted negative growth on previously flagged supply snags. 

Nestle expects real internal growth to rebound during the remainder of 2024, with a turning point at the vitamins business in the second quarter, Chief Executive Officer Mark Schneider said Thursday. 

Nestle confirmed its outlook for organic sales growth of around 4% and a moderate increase in the underlying trading operating profit margin this year.

While its reiteration of guidance indicates Nestle sees a strong recovery, investors are likely to remain skeptical until a visible improvement takes hold, according to Citigroup analyst Cedric Besnard. 

The company is also battling negative news on other fronts. Nestle recently had to defend the safety and treatment of its mineral water after standards were called into question by government agencies and NGOs. Separately, its addition of sugar into infant food in emerging markets has also come under scrutiny.

“Measures are needed to reinvigorate the organization” and “restore flawless execution,” Jean-Philippe Bertschy, an analyst at Vontobel, wrote in a note. 

(Updates with shares in fifth paragraph, analysts’ comments in ninth and 11th)

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