Dive Brief:
- For the third consecutive year, Nestle reported sales growth that fell below its internal target of 5% to 6%, with 4.2% growth for 2015, the company's weakest rate in six years. Analysts had prediced 4.3%.
- Nestle has not dropped this goal entirely, but CEO Paul Bulcke said on a call with investors Thursday that the company has "a sense of reality," as it predicts a similar growth rate in 2016 as in 2015. That cautious guidance could be a source of concern for investors.
- Net profit dropped to $9.18 billion and sales fell to $89.2 billion. Both figures missed analysts' estimates.
Dive Insight:
A major problem for Nestle is in pricing strategy. The company is finding it difficult to raise prices amid increasing competition and economies either slowing or going into recession. Low commodity costs, while beneficial for driving profits, also makes it more difficult to raise prices. Pricing contributed to a 2 percentage points increase for last year's sales, which fell short of 2.2 percentage points in 2014. However, CFO Francois-Xavier Roger said on the call that inflation in emerging markets could increase the company's pricing power in the second half of 2016.
Nestle sees acquisitions as a way to fill the gaps. This year, the company is anticipated to close on an ice cream joint venture, Bulcke said. However, those acquisitions are more likely to involve companies in skin health and medical nutrition as Nestle scales back its reliance on packaged foods.