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Packs of Nestle yogurt stand on display in a shop at the Nestle SA headquarters in Vevey, Switzerland.

(bloomberg)

(Bloomberg) -- Nestle SA’s fourth-quarter sales miss showed just how far away Chief Executive Officer Mark Schneider is from meeting the food giant’s mid-term targets. The shares fell as much as 2.8 percent to the lowest since April after the company said it expects 2018 organic revenue growth of 2 percent to 4 percent, some way from its aim of mid single-digit progress by 2020. Having hoped for “optimistic guidance,” Bernstein analyst Andrew Wood said he was left disappointed.

The company also said it won’t increase its 23 percent investment in French cosmetics maker L’Oreal and that it wants to keep all other options open. Thursday’s decline made Nestle the worst performer in the Stoxx 600 Food and Beverage Index and took its February slide to 6.1 percent.

Bernstein (Andrew Wood)

(Market perform, PT CHF85)
Nestle is the fifth company in Bernstein’s European food and household & personal care coverage to report 4Q, but the first to miss consensus analyst estimates, which will probably worry investors. “We had hoped for optimistic 2018 organic growth guidance,” and were disappointed that the company’s management only indicated that growth would improve.

Goldman Sachs (Mitchell Collett)

(Buy, PT CHF97)
Weaker organic sales growth in 4Q was mainly driven by slower growth in the Americas and the Asia, Oceania and sub-Saharan Africa zones. This will be partially offset by better-than-expected margin delivery, although marketing and administration expenses as a percentage of sales fell 110 bps from a year earlier.

Investec (Eddy Hargreaves)

(Buy, PT CHF92)

Nestle shares may initially react “slightly negatively” due to FY organic revenue missing estimates and the company’s “prudent guidance,” but this would be a buying opportunity given the strong margin performance.

Jefferies (Martin Deboo)

(Hold, PT CHF83)
Nestle won’t be renewing a L’Oreal shareholder pact with the Bettencourt family, but Jefferies doesn’t see an immediate sale of its L’Oreal stake. More restructuring is ahead and 2018 “feels like a further year of slow top line, with pricing weak and volumes decelerating.”

Liberum (Robert Waldschmidt)

(Sell, PT CHF73)
Liberum also doesn’t see an imminent sale of Nestle’s stake in L’Oreal. “In any event a spin-off of the stake to shareholders is as likely as an outright sale without the pre-cursor of large-scale M&A.”

RBC Europe (James Edwardes Jones)

(Outperform, PT CHF87)
Nestle’s 4Q results don’t give confidence about the company’s ability to meet consensus organic revenue growth expectations of 3.5% for 2018. “Nestle has a lot of potential for improvement and a mechanism by which that potential will be realised. But in our view these results don’t advance the argument.”

--With assistance from William Canny and Corinne Gretler

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh, Paul Jarvis

©2018 Bloomberg L.P.

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