Nestlé has recently reported that demand softness and inventory reductions have resulted in underperformance against the consensus for nine-month organic sales growth, as evidenced by a Thursday release. In light of rising geopolitical tensions, consumers are increasingly distancing themselves from global brands.
This shift, coupled with inventory cuts, has constrained real internal growth—a crucial metric for assessing sales volumes—capping it at just 0.5%. Consequently, Nestlé has recorded organic sales growth of only 2% for the first three quarters of 2024, a figure that aligns with RBC Capital Markets' calculations of 1.5% and falls short of the company-compiled consensus estimate of 3.3%.
As the world’s largest packaged food company plans to further scale back customer inventories in the fourth quarter amidst continued demand weakness, its guidance for organic sales growth in 2024 has been adjusted down to approximately 2%. This latest revision marks a further reduction from the previously projected 3% cut in July, following an earlier decrease from 4% in February.
The forecast for underlying earnings per share (EPS) growth has also been downgraded to broadly flat from mid-single-digit expectations. RBC's analysis indicates that while the results were disappointing, they were not unexpected. "Well, this isn't ideal, but we think it has little relevance to the longer-term Nestlé investment case.
Our own forecasts for 2025 already account for a significant margin decline and subdued sales growth. Certainly, a more prudent and realistic approach to guidance—notably for 2024 so far—is something that we have been seeking," RBC noted. Looking ahead to November 19, the Swiss food and beverage giant is set to elaborate on its medium-term objectives at its Capital Markets Day.
RBC is projecting organic sales growth of 3.2% and 3.5% for 2025 and 2026, respectively. "Our initial sentiment is that these uninspiring results and guidance changes bear little weight on that outlook, especially since the anticipated inventory reduction in Q4 could prove beneficial. While the published consensus may exceed that estimation by a significant margin (3.8% and 17.2%), our discussions with investors in recent weeks indicate that our sub-consensus forecasts resonate with many observers' perspectives." Data from the nine-month period highlighted robust sales growth in coffee along with emerging and European markets, which contributed to organic sales expansion that strips out the effects of currency fluctuations and acquisitions.
However, in reported figures, nine-month sales declined year-over-year, slipping to 67.15 billion francs from 68.83 billion francs. "Building on this strong foundation, we will sharpen our focus on consumers and customers and advance our categories to accelerate performance and secure market share," stated Chief Executive Officer Laurent Freixe.
"We will also expand our digital transformation to improve agility and efficiency. For our brands to succeed in the marketplace, strategic investments are essential. We will generate the necessary resources through operational efficiencies and growth leverage." The stock experienced a downturn during early morning trading, yet managed to recover approximately 2% by midmorning..