City News: Nestlé growth slows but market backs it for second half

Troubles in China, deflation in Western markets and soft commodity prices ate into Nestlé’s (NESN) first-half growth this week, but the market is staying behind the globe’s biggest food company.

It reported weaker than expected first-half organic sales growth of 3.5% to CHF43.2bn (£34.3bn) and an underwhelming 3.1% growth in the first quarter, largely due to a slowdown in its waters division, poor European weather and no growth in nutrition. Growth was dampened by the weak pricing environment, with pricing only driving 0.7% growth after reaching “a historically low level” due to deflation in developed markets and deflationary low commodity prices.

Trading operating profit was CHF6.6bn with a margin of 15.3%, up 30 basis points on a reported basis and in constant currencies. This improved profitability was driven by cost discipline, portfolio management, premiumisation strategies and an input cost tailwind and came despite increased investment in marketing and R&D.

Analysts at Société Générale noted volume growth was “a little weaker than consensus”, but expected Nestlé to step up performance. The broker said: “Given organic growth of 3.5% in the first half to deliver like-for-likes in line with last year implies a strong recovery in the second half into the high 4% region.” Nestlé shares were up 1.1% to CHF79.20 on Thursday morning and the shares remain 6.2% up since the start of 2016.

Elsewhere, Glanbia (GLB) shares were up 3.2% to €18.05 on Wednesday after a “strong” first-half performance. Revenues in the six months to 2 July nudged up 0.2% to €1.4bn (£1.2bn), while earnings before interest, tax and amortisation rose 13.7% in the half to €157.4m.

The supermarkets had a tough start to the week after research from The Share Centre suggested the price war had pushed the listed grocers’ collective sales below £100bn in the second quarter. Tesco (TSCO) was down 1.7% to 157.8p, Sainsbury’s (SBRY) down 1.1% to 235p and Morrisons (MRW) down 0.9% to 190.9p. All were boosted on Thursday morning after the release of positive July retail sales from the ONS.