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Growth formula eludes under-fire Nestle, L'Oreal stake unchanged

Reuters  |  VEVEY, Switzerland 

By Koltrowitz

VEVEY, (Reuters) - forecast modest organic sales growth this year and reported its weakest gain on record in 2017 on Thursday, giving fresh fuel to investor Daniel Loeb's campaign to overhaul strategy at the world's biggest group.

Shares in the maker of KitKat chocolate bars and Nescafe coffee hit a 10-month low after it said organic growth, which excludes acquisitions and currency moves, was only 2.4 percent in 2017, missing the lowest estimate of 2.6 percent in a poll of analysts.

and its rivals have been buying and selling brands to improve performance as sales slow due to a shift in consumer tastes towards healthier foods and independent labels.

Loeb's hedge fund took a $3.5 billion stake last summer and has been pushing to speed up its transformation into a higher-growth, more efficient company.

"Work on costs usually kicks in faster than work on growth," said at in Vevey, on Lake Geneva, in part due to the lag between buying a new brand and it contributing to performance.

also said it had decided not to renew a shareholder agreement with beyond March 21 to maintain "all available options", but had no intention to increase its 23 percent stake and remained committed to the cosmetics company.

That is likely to fuel speculation about selling its stake, according to a L'Oreal's last week said the company was ready to buy back the stake, should decide to sell.

The sale of the stake, worth nearly 23 billion euros, figured prominently among Loeb's demands.

also said it had decided to explore strategic options including a sale for its Gerber Life business, which had sales of 840 million Swiss francs last year. It will hold on to Gerber

"We continue to believe that 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," said analysts.


Nestle's organic sales growth slowed to 1.9 percent in the fourth quarter to Dec. 31, well below the 2.85 percent estimate in the poll, hit by weak performance in and Brazil, particularly in waters and nutrition.

"We expect most of these issues to be transitory in nature," Schneider said, adding that he expected an improvement this year. Still, he gave a wide target for 2018 growth of 2-4 percent, which will be narrowed as the year progresses.

Net profit in the full year dropped 16 percent to 7.2 billion Swiss francs ($7.76 billion), short of the 9.625 billion average poll estimate, hit by a goodwill impairment in its skin health unit that "was taken to reflect the current prospects of the business", said in a statement.

Schneider would not comment on whether was still committed to the unit, but would continue this year with a focus on small to mid-sized deals.

"But we do not rule out anything," he said.

proposed a dividend of 2.35 francs per share for 2017, also shy of the 2.40 francs average in the poll.

($1 = 0.9275 Swiss francs)

(Additional reporting by Helen Reid in London; editing by Michael Shields and Alexander Smith)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, February 15 2018. 14:34 IST