Investing.com -- Nestle's third-quarter results fell short of already-lowered estimates, raising concerns about the company's growth trajectory for the remainder of the year.
Analysts at Jefferies pointed out that the latest update was "notably below even revised expectations," warning that the disappointing performance is likely to trigger further consensus earnings cuts of 3-4% for the full fiscal year.
The Swiss food giant reported organic sales growth of just 1.9%, well below the 3.3% analysts had anticipated.
This weaker-than-expected result was driven by softer real internal growth of 1.3%, missing the consensus forecast of 2.3%, and lower pricing at 0.6%, compared to expectations of 0.9%.
Nestle attributed the sales miss in part to reduced retailer inventories, suggesting that overstocking in the first half of the year had inflated earlier results.
This issue affected multiple divisions, with the Health Science division being the only one to meet expectations, as it continued recovering from IT disruptions that had impacted its 2023 performance.
In addition to this, Nestle lowered its full-year outlook. The company now expects organic sales growth of around 2% for 2024, down from its previous guidance of at least 3%.
Earnings per share are projected to be "broadly flat" in constant currency, a sharp downgrade from the prior expectation of mid-single-digit growth.
Analysts now forecast that consensus EPS estimates for FY24 will fall from CHF 4.76 to approximately CHF 4.60.
Jefferies analysts noted that these results are likely to cause Nestle to underperform compared to its peers, with the company’s slowing growth raising broader concerns for the food and consumer goods sector.
The updated margin guidance of "around 17%" is also below earlier expectations, signaling further pressure on profitability.
North America, Nestle’s largest market, was a weak spot. RIG in the region came in at just 0.3%, well below the anticipated 2%, while pricing fell by 1.1%.
Nestle cited promotional timing and heightened competition in key areas such as frozen foods, pet care, and coffee creamers as reasons for the underperformance.
Jefferies warned that the company’s difficulties in navigating the value-driven behavior of U.S. consumers could pose a challenge to its midterm growth outlook.
In Europe, Nestle faced tough negotiations with retailers and experienced de-listings, impacting growth in categories like confectionery and culinary products.
The company also flagged a slowdown in Turkey, where economic pressures further weighed on performance.
Meanwhile, Latin America posted an even larger decline, with reduced customer inventories and weakening consumer demand in Brazil and Mexico dragging down results.
Dairy and infant nutrition, in particular, underperformed in the region.
Despite these challenges, some analysts see limited impact on Nestle’s long-term prospects.
RBC (TSX:RY) Capital Markets said that while the near-term results are less than ideal, they have little bearing on the broader investment case for Nestle.
RBC added that their own 2025 forecasts already account for slower sales growth and margin pressures, and that a more cautious approach to guidance—expected at the upcoming Capital Markets Day (CMD)—is something they have been anticipating.
Attention is now turning to Nestle's CMD in November, where the company is expected to provide more clarity on its midterm ambitions.
Jefferies analysts see the event as a potential "reality check" for Nestle and its competitors, as growth targets may need to be reassessed.
The company’s current goal of 4-6% annual sales growth appears increasingly unrealistic, given the structural changes in the sector over the past decade, excluding the pandemic-driven spikes and price increases of 2022 and 2023.
Morgan Stanley (NYSE:MS) analysts flagged the absence of specific long-term financial targets in Nestle's latest update, though management emphasized the need to invest in its brands to secure future success.
Nestle indicated that it plans to fund these investments by driving efficiencies and leveraging growth opportunities, which, in turn, would support sustained profitable growth over time.
The key question for the market, according to Morgan Stanley, will be whether these efficiency gains can adequately offset the additional investment required, and if the timing of both will align. Investors will be watching closely to see if Nestle can achieve this without having to reset its margins.