Swiss food giant Nestle (NSRGY) posted first-half sales growth that came in below expectations but reiterated its full-year guidance amid a pledge boost margins and underlying earnings per share in constant currencies.
Revenue rose by 3.5% on an organic basis in the first half to 43.2 billion Swiss francs ($45.02 billion), below the 3.7% Bloomberg News consensus forecast.
Organic growth was strongest in the Americas region, up 4.7%, though deflationary pressures weighed on pricing in North America and with pet care growing in the double digits in most Latin American markets.
The Vevey, Switzerland-based maker of Kit Kat candy bars, Purina pet food and S. Pellegrino bottled water also confirmed its outlook for the year of organic growth in line with last year's 4.25%. It has a long-term target of 5% to 6% sales growth.
"While we continued to address challenges in China, we enjoyed good performances across the U.S. Europe, South East Asia and Latin America and expect this to continue in the second half," said CEO Paul Bulcke.
"We also expect pricing, which reached historically low levels in the first half, to recover somewhat in the coming months," he added. Bulcke will hand the reigns next year to company outsider Ulf Mark Schneider, an executive with a healthcare background as CEO of Germany's Fresenius Group FMS since 2003.
During a conference call, Nestle CFO François-Xavier Roger said the first-half results "are broadly in line with our expectations." But he said the Nestle Nutrition was at a softer level than in the past, due to a combination of limited and as weak demand in China. In the U.S., the company recently exited some weak contracts and has had a "difficult" transition moving from glass to plastic, he added.
Nestle shares were up 1.02% in Zurich at Sfr 79.15, after an initial slide. Its current market value is around putting its market value at around Sfr 246.8 billion. The stock has a one-year return of 9.06%.
Analysts at Liberum Capital in London have a hold rating on Nestle shares with a Sfr 81.4 target price, calling the stock an "attractive defensive haven" in a Thursday note.
However, they predict the shares will "remain stuck" in a trading range in the near term, as management tackles with underperforming assets, improving the product mix and raising exposure to structural growth categories and regions "which may lead to upside surprise although current progress is slow."
Analysts at UBS noted that Nestle's 3.1% second-quarter implied organic growth in the second quarter compares to stronger growth of 4.1% for France's Danone (DANOY) .
Barclays analysts underscored that second-quarter and first-half sales were always expected to be a low point in the year, as deflationary pressures weighted on the business before a pick-up in the second half.
But they said the risk to full-year earnings per share "if anything remains skewed to the upside," with management reaffirming expectations of a return to better growth in the second half and with better margins showing a tight focus on costs is having the desired effect.
While there has been some speculation of ramped up M&A under Nestle's incoming CEO, most analysts predict a continued focus mainly on organic growth, and product innovation.
Nestle in April agreed to set up a 50/50 joint venture with private equity-backed R&R Ice Cream plc, which it said Thursday it expects to close by the end of this year.