Nestle SA Reg Shs. Ser. B Spons (ADR)(OTCMKTS:NSRGY) lowered its full-year guidance as a Maggi noodles recall in India hampered sales and under calculated United States Skin Health rebates weighed on its profits. Expressing his views on the outlook, the CEO Paul Bulcke said that he is disappointed as the one-off expenses are high, and they overshadow fundamentally good things.
The dismal performance
Sales declined 2.1% to 64.9 billion Swiss francs in the first three quarters through September, lower than analysts’ average estimates of 65.9 billion. Organic growth, adjusted for acquisitions, divestitures and currency swings dropped to 4.2% in the reported period from 4.5% in the first half, declining further behind its 5% goal for 2015. The company reduced its outlook for 2015 to nearly 4.5% compared to initial outlook of 5% to 6% growth.
The view
Barclays’ analysts stated that the drop comes from pricing as Nestle failed to follow its pricing measures as planned. More importantly the problem seems to be appearing from the Asia, Australia, Oceania region, with revenue drop in the third quarter. Nestle performed well in 1H2015, but suffered in the third quarter following the Maggi noodles recall in India and a U.S. rebate adjustment.
The problem
Nestle India banned Maggi noodles after an Indian government lab reported detection of high levels of lead in a Maggi noodles sample. Although the Bombay High Court removed the ban on the noodles, it added that company must perform fresh tests before the start of sales. The company expects to have Maggi noodles back on the market by year’s end.
Regarding the recall, the CEO said that they have been cleaned again, and always stated the product was safe. However, the entire issue has had a deeper impact. Now the company has to work with the authorities and re-launch the product as soon as possible.
