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Nestle pricing not an important element for organic growth: CEO

Reuters with CNBC

Nestle posted its weakest underlying sales figures in over a decade on Thursday with CEO Paul Bulcke telling CNBC news pricing is not an important element for organic growth.

The Swiss food giant cut its outlook for the year, saying it now expected its full-year sales to rise by 3.5 percent after posting an increase of 3.3 percent for the first nine months. It previously said it expected full-year organic sales to rise by around 4.2 percent.

Its shares were indicated 1.7 percent lower in pre-market activity.

File photo of snack bars on sale.
Chris Ratcliffe | Bloomberg | Getty Images

Bulcke defended the food manufacturer's trimmed outlook, saying "there is quality behind that."

He added, "Pricing is not a very important element in our organic growth, hence our projection."

Nestle is not alone facing the challenges of low growth in a deflationary environment, the maker of KitKat chocolate bars and Nescafe soluble coffee has been struggling with price deflation for its products in Europe amid fierce competition among supermarkets and weak commodity prices.

Tough conditions have also persisted in key markets like China and Brazil.

Rivals like Unilever have increased prices to compensate for currency weaknesses in some markets like Britain.

Nestle said it continued to prioritise volume increases in what it described as a soft environment, but saw some improvement in pricing.

"In an environment marked by deflation and low raw material prices, we continued to privilege volume growth," Chief Executive Paul Bulcke said in a statement. "Pricing remained soft but increasing."

In spite of the cut to Nestle's business outlook, Bulcke was quick to stress the positives that could be taken from this report, he told CNBC news, "This is still a very good growth project. Our growth has been driven by volume and that in a deflationary environment with very low raw material prices and no need for pricing per say."

Nestle's 9-month sales rose to 65.51 billion Swiss francs ($66.19 billion) from 64.86 billion Swiss francs a year earlier, Vevey-based Nestle said. The figure lagged the average analyst estimate of 66.00 billion francs in a Reuters poll.

Analysts polled by Reuters had on average expected organic growth -- which strips out the impact of acquisitions and currency swings -- of 3.7 percent.

"Europe looks like it was under pressure during the quarter while China weakness is weighing on Asia despite the recovery in India," said analyst Jon Cox at Kepler Cheuvreux.

"The cut in guidance is disappointing although all of the staples companies looked like they have had a tough quarter - they need to find relevance with consumers," he added.

Unilever said its underlying sales increased 4.2 percent for the first nine months of 2016, supported by a 2.7 percent rise in pricing, when it published third-quarter results last week, while French rival Danone this week posted a 2.1 increase in sales during its third quarter.

On discussing the company's performance in the emerging markets, Bulcke argued that growth is going to be there again. He went on to say, "For us (Nestle), emerging markets are growing as well as the developed markets and we have always said we want to be an 'and' company. We don't want to disengage from the developed markets."

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