Swiss group beats expectations as coffee growth offsets impact of baby product saga
Nestlé sales took a hit in the first quarter after the Swiss food group issued a recall of infant formula over fears it could be contaminated with a dangerous toxin.
The company said on Thursday that sales in its nutrition business were down 3.9 per cent from a year earlier because of the recall.
However, the drop was offset by strong sales in its coffee business, which grew 9.3 per cent, and the group reported better than expected sales growth of 3.5 per cent in a sign that its new management team’s turnaround plan is starting to pay off.
Nestlé’s results come after Danone, which also had to recall infant formula after having sourced the same contaminated ingredient from China, reported on Wednesday that sales in its specialised nutrition division in Europe, the Middle East and Africa had fallen 4.3 per cent on a like-for-like basis.
The two companies were forced this year to issue recalls in more than 65 countries for products that could contain the ingredient contaminated with cereulide, a toxin that can cause nausea and vomiting.
Nestlé has also battled weak consumer demand in recent years for its pet food, frozen food and confectionery brands.
New chief executive Philipp Navratil and chair Pablo Isla, the former Inditex boss, are in the process of simplifying the sprawling group’s reporting and sales structures in an effort to boost performance.
The KitKat maker said the infant formula recalls represented a 0.9 per cent drag on group sales growth in the quarter.
Half of this was from sales returns, stock shortages and replenishments, while the rest stemmed from the impact on consumer demand. The company said product availability was now back to normal and consumer demand would recover by the end of the year.
The worst hit came from China, where overall sales fell 10.6 per cent as a result of the recall, and as the company clears out excess stock from its distribution networks.
The FT reported this week that distributors were claiming Nestlé owed them hundreds of thousands of renminbi in reimbursements for unsold goods.
Danone said that in the Middle East it had struggled to return baby milk stocks to normal levels following the recalls because of supply chain restrictions relating to the Iran war.
“Whilst the supply chain in Europe is mostly back to normal, the Middle East situation is not yet stable due to long lead times of stock replenishment,” chief financial officer Juergen Esser told analysts on Wednesday.
Source: www.ft.com
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein