Switzerland-based global food and drink giant Nestlé SA (NSRGY) posted its most recent full-year 2016 and fourth-quarter earnings report on Thursday. The maker of KitKats, Nescafe and Purina pet food failed to meet the consensus estimates, posting its slowest organic sales growth in 20 years.
In 2016, Nestlé's net profit came in at 8.53 billion Swiss francs ($8.53 billion) down 6.6% from 9.1 billion over the same period last year and falling short of the Street’s forecasted 9.59 billion. Total revenue grew just slightly by 0.8% to 89.47 billion francs.
Organic sales growth, excluding the impact of acquisitions, rose 3.2% year-over-year (YOY) in 2016 at the low end of expectations. A slowdown from 4.2% growth in 2015 was attributed to a variety of factors including softened demand in emerging markets such as China, increasing competition in the U.S. chocolate market, deflation in Europe and inflation in Brazil and Russia.
New CEO Cuts Growth Target
Newly instated Chief Executive Mark Schneider has reduced Nestlé's long-standing annual sales growth target from 5% to 6% to between 2% and 4%, aiming for mid-single-digit growth by 2020. The CEO, who took charge just two months ago, says the firm will bolster its cost-cutting plan as the world’s largest food company expects restructuring costs to rise an approximate $500 million in 2017. As a result, Schneider says the firm expects trading operating profit margin in constant currency to be stable.
“Our 2016 organic growth was at the high end of the industry but at the lower end of our expectations. We saw a solid trading operating profit margin improvement and our cash flow grew significantly. Based on these results, our Board of Directors is pleased to propose the 22nd consecutive dividend increase, underlining our commitment to continuity,” stated Schneider. (See also: Nestlé Says It Will Satisfy Your Sweet Tooth With Less Sugar.)