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Nestle sees sales growth below target again in 2014

17 February 2014

Nestle expects another challenging year that could see it undershoot its long term targets again, after pressure on prices in Europe and weaker emerging market demand slowed sales growth to 4.6% in 2013.

Food companies face slacker sales both in emerging markets, where economies are losing steam, and in austerity-hit Europe where consumers are tightening their belts.

Chief Executive, Paul Bulcke, said the European market was not getting better and voiced concern that the region could enter a ‘deflationary spiral’. He said America was not bouncing back as quickly as it did in the past.

"The emerging markets are growing more slowly. I think they are getting to a pace that is possible to maintain. We see some headwinds in Latin America and Asia," he said at the group's annual results conference.

Nestle experienced a slowdown in organic sales growth, which strips out the effects of currency swings and acquisitions, to 4.6% in 2013 from 5.9% a year earlier.

The world's biggest food group said that, as in 2013, it was targeting ‘around 5%’ organic sales growth this year, below its long term goal of 5 to 6%.

Bernstein analyst Andrew Wood said the guidance was fairly cautious. "But this is still reasonable in a tough market environment," he said, adding that Nestle's rivals had given similar guidance.

"While today's results may disappoint some investors, we continue to view Nestle as an attractive investment in the current challenging environment," Bank of America Merrill Lynch analysts said, adding Nestle remained their top pick in food. They said they saw scope for earnings upgrades during 2014. JP Morgan also continues to favour Nestle among European big cap food companies.

Nestle said on Tuesday it was selling an 8% stake in L'Oreal to the cosmetics group and would use cash proceeds of €3.4billion for a share buyback. Chief financial officer, Wan Ling Martello, said details would be communicated when the deal closes, probably before July. It said it was committed to its remaining 23% stake in L'Oreal.

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