Nestle on Track for Another Subpar Year
Organic growth remains well below the levels being achieved by other large-cap consumer staple multinationals.
Nestle (NSRGY) is bang on track to meet our full-year forecast of 1.5% reported sales growth after a tepid first quarter. We reiterate our CHF 79 fair value estimate. We believe that the pullback in the stock since the turn of the year has been justified and that shares offer only very modest upside from current levels. Although Nestle appears to be suffering from the low-growth environment more than most of its peers, the company's wide economic moat is based on its supply-chain entrenchment, rather than brand equity. Thus, while weak pricing is not entirely surprising, we are reiterating our wide moat rating.
First-quarter organic growth of 2.8% was in line with our forecast and mercifully above the 1.9% growth of fourth-quarter 2018. It remains, however, well below the roughly 4% being achieved by many other large-cap consumer staples multinationals, primarily reflecting Nestle's soft price/mix, which again deteriorated sequentially in the quarter, to just 0.2%. Volume growth of 2.6% was an improvement over the fourth quarter, but was supported by the absence of pricing. Nestle's sales data looks particularly weak when contrasted against the performance of close competitor Danone, which achieved 4.9% like-for-like growth and posted greatly superior results in the categories in which it goes head-to-head with Nestle: bottled water and infant formula.
Geographically, sales contained few surprises and were consistent with both our forecasts and commentary from other consumer staples multinationals that have reported so far this reporting season. Zone AOA, which includes Asia, was strong with 4.7% organic growth, thanks to growth in emerging markets and a strong Chinese New Year selling period. On the other hand, Europe was weak with negative pricing.
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Philip Gorham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.