×

UPDATE 4-Weak sales raise pressure on Nestle boss to speed up overhaul

* H1 organic sales growth 2.3 pct, same as Q1

* Sees 2017 sales at lower end of target range

* Shares fall 0.8 percent

* No comment on dialogue with Daniel Loeb (Adds CEO comments from call)

ZURICH, July 27 (Reuters) - Nestle trimmed its 2017 sales forecast to what would be its weakest growth in 20 years, adding fuel to calls on Chief Executive Mark Schneider to speed up a turnaround of the world's largest food group.

Since taking control of the maker of KitKat bars and Nescafe coffee in January, Schneider has faced demands to improve its performance, led by activist investor Daniel Loeb, whose U.S. hedge fund disclosed a $3.5 billion stake in June.

Nestle has been cutting costs, making small investments in health science companies and last month announced a share buyback plan in an effort to boost returns.

Global food companies have been battling slowing sales as consumers' tastes change, and Nestle has been accused of responding more slowly than peers such as Unilever and Danone, which have bought faster-growth companies with products aimed at health-conscious millennials.

Nestle reflected these difficulties on Thursday when it said it expected 2017 sales growth to be "in the lower half" of its 2 to 4 percent target range.

The company's organic sales growth has slowed over the last four years, leading to Schneider scrapping a long-term target of 4 to 5 percent growth. A slowdown to the bottom half of 2 to 4 percent would be Nestle's weakest growth in more than 20 years.

Nestle said its organic sales, including volume and price increases, grew by 2.3 percent in the first half, the same rate as the first quarter, trailing analyst estimates of 2.8 percent and slowing from 3.5 percent a year earlier.

Schneider, who is expected to unveil more of his strategy at an investor day in September, said he was disappointed with the slowdown, which he blamed on weak pricing.

Still, Nestle expected "improved" organic growth in the second half of the year, Schneider told analysts, while the company was looking at accelerating further restructuring projects.

Nestle was also looking at several small and mid-sized acquisitions in high-growth areas, and planned to sell its U.S. confectionery business by the end of the year, Schneider said.

"We have seen significant interest in our business both from strategic and financial buyers and of course while we would like to retain flexibility ... our clear priority is a straight sale of the business," he told an investor call.

"The process is on track, and we hope to complete the process by the end of this year."

NO MAGIC WAND

Although Nestle's first-half net profit rose 19 percent to 4.9 billion Swiss francs ($5.16 billion), beating a 4.83 billion franc average estimate in a Reuters poll, its shares lost 1 percent as analysts saw the results as weak.

"It shows you that CEO Mark Schneider has a lot of work to do and there isn't a magic wand in terms of getting the top line going," Jon Cox from Kepler Cheuvreux said.

Nestle Chief Financial Officer François-Xavier Roger declined to say whether pricing - which increased by 0.9 percent in the first half - would pick up this year.

"We are cautious. Part of it is linked to commodity prices and because of the high volatility there, we need to be cautious," he said.

Nestle had raised prices in Europe for products such as coffee, but this had reduced sales volumes, Roger told reporters.

He declined to comment on any dialogue with Loeb's Third Point, which has urged management to set a margin target of 18 to 20 percent by 2020, buy back shares, sell non-core businesses and exit French cosmetics giant L'Oreal.

Although Schneider has made some changes, Loeb, who was not immediately available for comment, and others say the company is moving too slowly.

(Reporting by John Revill, additional reporting by Silke Koltrowitz and Brenna Hughes Neghaiwi; Editing by Michael Shields and Dale Hudson)