Nestle confirms outlook as volume growth picks up

By Silke Koltrowitz

ZURICH (Reuters) - Food group Nestle confirmed its full-year guidance after organic sales growth accelerated to 2.8 percent in the first quarter of 2018, helped by improving volumes.

Nestle is among packaged food companies taking action after seeing sales slow as many consumers prefer fresh foods, reacting by cutting costs, divesting underperforming businesses and increasing efforts to innovate with new products.

The maker of KitKat chocolate bars and Maggi soups confirmed on Thursday its target to grow organic sales by 2-4 percent this year and improve its trading operating margin. It also said it was on track to return to mid-single-digit organic sales growth by 2020.

It also confirmed it expected restructuring costs of around 700 million Swiss francs ($723 million) this year.

Quarterly organic growth of 2.8 percent, which strips out currency swings and portfolio changes, was ahead of the average estimate of 2.5 percent in a Reuters poll and up from 1.9 percent in the final quarter of 2017.

Volume growth picked up to 2.6 percent, from 1.2 percent in the final quarter of 2017, but prices rose by only 0.2 percent, Nestle said in a statement. Price pressures were illustrated by a price row with European retailers.

There were also broadly positive reports from other consumer goods companies.

French yogurt maker Danone on Wednesday reported a 4.9 percent rise in first-quarter underlying sales, helped by strong demand for baby formula products in China

Anglo-Dutch Unilever reported first-quarter sales that met expectations, helped by volume gains, and maintained its full-year outlook.

SIGNS OF IMPROVEMENT

For Nestle, growth in the Americas accelerated to 1.2 percent and Asia (AOA), at 4.7 percent, was also better than the previous quarter, while Europe, the Middle East and North Africa (EMENA) slowed to 2.2 percent, hit by declining prices, Nestle said.

Kepler Cheuvreux analyst Jon Cox said sales figures were better than feared, highlighting the improvement in the U.S.

"However, we are now in the execution phase of efforts to accelerate sales," he said. "While there is an improvement, it is clearly going to take time to accelerate sales for a group the size of Nestle."

Vontobel's Jean-Philippe Bertschy said deflationary pressures in Brazil and Europe had led to the weak pricing, but the slightly better-than-expected figures should help market sentiment.

Shares in the group, which have lost around 10 percent of their value this year, were indicated to open 1.1 percent higher, according to pre-market indications by bank Julius Baer.

They are trading at around 20 times forward earnings, at a premium to Danone at just under 18 times and in line with Unilever.

($1 = 0.9687 Swiss francs)

(Editing by Michael Shields/Keith Weir)