Nestlé warns of tepid sales growth

Nestlé has warned that sales growth in 2017 will be the weakest in at least two decades, giving activist investor Dan Loeb ammunition for his campaign to overhaul the world’s largest food company.

Organic revenue growth would be at the lower half of its 2% to 4% forecast, the maker of Nespresso capsules and Perrier bottled water said on Thursday. The shares erased most of a 2.5% intraday decline as CEO Mark Schneider said sales growth should improve in the second half and Nestlé may expand restructuring plans.

It was “a semester to forget”, wrote Jean-Philippe Bertschy, an analyst at Bank Vontobel. “Nestlé will have to convince investors at the investor day in September that it will be able to accelerate growth and deliver on profitability.”

Schneider is under pressure to turn around the maker of Gerber baby food and Purina dog food after Loeb revealed a $3.5bn stake in June, demanding asset sales and higher shareholder returns.

The food industry has suffered recently as consumers shun packaged food they perceive as unhealthy.

French yoghurt maker Danone also reported that sales barely grew in the second quarter. Last week, Unilever reported it had no volume growth in the second quarter.

The approach by Loeb’s Third Point plus Kraft Heinz’s abandoned bid for Unilever highlight the difficulties big food has had in reigniting their businesses.

“Food companies will need to reinvent themselves, and a lot will have to change in the sector, especially in the developed markets like Japan, Europe and North America,” said Patrik Lang, head of equity research at Julius Baer Group. Nestlé wanted to invest more in the health trend, Unilever was focusing on personal hygiene and Danone was “searching for its own identity”.