Nestle H1 sales dip, keeps outlook

Reuters with CNBC.com

Nestle reported slightly worse-than-expected half-year sales on Thursday, hurt by a recall of its Maggi noodles in India.

The world's largest packaged food company, with brands like Nescafe, KitKat and Perrier, reported sales fell 0.3 percent to 42.84 billion Swiss francs ($43.87 billion) in the half year to June versus analysts' expectation for a dip of 0.1 percent to 42.95 billion, according to a Reuters poll.

Kuni Takahashi | Bloomberg | Getty Images

Net profit fell 2.5 percent to 4.52 billion francs, lagging analysts' average estimate for a 2.3 percent rise to 4.74 billion.

Like all consumer goods companies, Nestle has been grappling with slowing sales as once-hot economies like China and Brazil cool and European consumers continue to purchase cautiously.

The company kept its outlook for the year. It had earlier forecast annual sales growth of around 5 percent, at the low end of its long-term model calling for 5 to 6 percent growth.

Organic growth was 4.5 percent in the first half. The second-quarter organic sales growth was the "biggest surprise" as it beat expectations of 4 percent or below, according to Jon Cox, head of Swiss equities & head of European consumer equities at Kepler Cheuvreux.

India seeks damages from Nestle over Maggi noodles scare

All consumer goods companies are suffering from sluggish markets worldwide but Nestle's particular problems involve its U.S. frozen foods business where sales are falling amid weak consumer perceptions around the health of frozen food, and a pullback in China.

In addition, Nestle's India unit last month reported a 20 percent slide in second-quarter sales, after its Maggi noodles were pulled off shelves due to safety concerns.

"In India, our withdrawal of Maggi noodles resulted in negative organic growth which will continue into the second half. We are engaging fully with the authorities as we work to relaunch the product," it said on Thursday.

The Indian government has filed a lawsuit against Nestle's Indian unit, seeking 6.4 billion rupees ($99 million) in damages on behalf of consumers after the country's worst packaged food scare in a decade.

Nestle: Maggi scandal will have knock-on impact

Cox told CNBC that the recall of Maggi's noodles in India, will have a "legacy impact", especially as it's a food that used to feed infants and toddlers in India.

"There will always be a legacy impact. It will take many years for people to forget there was some sort of issue. That will always happen with any sort of product recall."

"Of course, I'm sure there will be a strong advertising campaign to say 'There's nothing wrong with our noodles' - there probably wasn't in the first place. Relatively (expect) a stability in the overall sales in India, however I can imagine quite a few mothers won't be going back to Maggi noodles anytime soon, because of that product recall."

Cox went on to add that when looking at the local currency and organic developments at Nestle, it was a "fantastic set of figures today."

However, there are "pretty fierce currency headwinds" for Nestle, especially with the Swiss central bank letting the Euro peg break earlier this year. Cox added that Nestle should feel this impact for the rest of the year.

Nestle stock trades at around 21 times 12-month forward earnings, roughly in line with rivals Danone and Unilever , according to StarMine, which weights analysts' estimates by their previous track record.

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