Nestlé forecast lowered by noodle recall

Nestlé CEO Paul Bulcke sees lower organic sales growth yet positive momentum Keystone

Nestlé reported nine-month revenue growth on Friday that missed analysts’ estimates due to what the company’s CEO called “exceptional events” in the third quarter, like the recall of its iconic Maggi noodles in India and a rebate adjustment in Nestlé Skin Health.

The world’s biggest food company, based in Vevey, said its revenue – measured as organic sales, which excludes currency shifts and costs from acquisitions or divestments – rose 4.2%, short of the median 4.7% gain in a Bloomberg survey.

Though a high court in India set aside a two-month-old nationwide ban on Nestlé’s best-selling Maggi noodles, the recall has contributed to a challenging year for the company along with the export-denting strong Swiss franc, deflation in parts of Europe and market weakness in China.

“After a good performance in the first half of the year we were impacted in the third quarter by exceptional events, with Maggi noodles in India and a rebate adjustment in Nestlé Skin Health,” Nestlé CEO Paul Bulcke said in a statement.

The court overturned a June 5 order to recall the noodles that India’s food safety and standards authority issued based on government tests for lead in the product.

The impact of the recall was among the major factors cited by company in its overall revenue picture and its decision to lower its previous forecast of 5% organic sales growth for the whole of 2015.

“On the whole, organic growth fell short of our expectations and therefore we project organic growth of around 4.5% for the full year, with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency,” said Bulcke.

Nestlé’s portfolio, which also includes bottled water, pet food and prepared food, is so broad that it can usually deliver consistent results. The company, however, has been contending with slower demand in some important developing markets along with increased competition and economic weakness and deflation.

The  Swiss-based maker of Nescafé coffee and KitKat chocolate also said it decided to take “a more conservative approach to Nestlé Skin Health’s prescription drug rebate policy in the US which required a one-off charge in the third quarter.” But it added that the underlying growth momentum of that business is unaffected, with innovation and product roll-out continuing to drive sales in all its businesses globally. 

“We made good progress in much of Latin America and delivered a significant improvement in North America, especially in frozen food, contrasting with slower sales recovery in China,” said Bulcke.

He also noted that real internal growth increased, reflecting “broad-based positive momentum across our business and many of our markets”.