Nestle: Organic Sales Growth Decelerates Further Leading to Another Guidance Downgrade

Nestle reported nine-month organic sales growth of 2.0% (real internal growth of 0.5% and pricing up 1.6%), below the company-compiled consensus estimate of 2.5%. This was predominantly driven by worse-than-expected real internal growth (0.3% below consensus), which included a 60-basis-point negative impact from customer inventory management actions, particularly in the Americas. Given soft consumer demand and flattening pricing, full-year guidance was reduced once again with management now expecting organic sales growth of around 2%, from more than 3% previously, and flat EPS versus a mid-single-digit increase previously. Guidance for the underlying operating margin was also reduced to around 17%; previously the company expected a moderate increase compared with the 17.3% reported in 2023. The second-half margin is lower than expected given the negative operating leverage from the weaker top line and some input cost increases coming through, particularly for coffee. We trim our fair value estimates for Nestle to CHF 100/$116 from CHF 105/$120 to account for lower 2024 organic growth and margin guidance, and currency movements.