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Some investors, analysts think Nestle may cut guidance

again

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Nestle lowered sales guidance in July

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Nestle to report nine-month earnings on Thursday

By Richa Naidu

LONDON, Oct 16 (Reuters) - Nestle could use the

fresh start provided by new CEO Laurent Freixe in the coming

months to lower financial guidance for the second time this year

following months of weak sales volumes, according to some

analysts and investors.

Under former chief Mark Schneider, who was ousted in August,

the world's biggest food company already cut its guidance once

this year.

In February, Nestle said it expected 2024 organic sales

growth around 4% and a moderate increase in the underlying

trading operating profit margin.

By July, it estimated organic sales growth "of at least 3%",

and a mid-single-digit percentage rise in underlying earnings

per share at constant currencies, sending its stock down by more

than 5%.

"A lot of investors are wondering, can they really hold on

to the prior margin guidance? Or if the brands need a little bit

more investment?" said Jeneiv Shah, portfolio manager at Nestle

investor Sarasin & Partners. "I think it's commonly known now

that's a potential scenario."

Nestle declined to comment.

On Thursday, the Swiss group is expected by analysts to

report nine-month organic sales growth of 2.5%, according to a

company-provided consensus. Real internal growth - a metric

reflecting sales volumes - is expected to have risen by 0.8%.

Freixe's challenges include reviving innovation and

marketing, and winning back investor confidence in core brands,

which include Nescafe coffee and Kit-Kat wafer snacks.

The packaged food industry has in recent years had to cope

with soaring costs as everything from sunflower oil and shipping

to packaging, grain and energy became more expensive during the

pandemic and after Russia's full-scale invasion of Ukraine.

This year, as inflation has eased, many of Nestle's

competitors have slowed price increases, hoping to woo back

shoppers who turned to cheaper products.

Nestle, however, did not cut prices as quickly, analysts

said, and Schneider's departure came on the heels of several

weak quarters of sales volumes.

"People will be very interested on seeing whether companies

(like Nestle) are sticking to their long term goals or pulling

back," Ben Lofthouse, Janus Henderson's ( JHG ) head of global equity

income, said.

By 2025, Nestle has said it expects "mid single-digit

organic sales growth and an underlying trading operating profit

margin range of 17.5% to 18.5%."

"If it's a 4-6% top line growth company long term, it's too

cheap," Lofthouse said. "And when there's management change any

of these companies, that's when the opportunity comes from to

change that outlook," he added.

Shares in Nestle have fallen over 15% since the start of the

year, and about 7% since Freixe started his new job in

September.

"We anticipate that new CEO Laurent Freixe will adjust the

guidance for 2024 and set new, simplified mid-term financial

targets," Jean-Philippe Bertschy, head of Swiss equity research

at Vontobel, said. "He has already indicated that sales growth

will be a primary focus, with increased investments behind the

brands."

"Market expectations have come down significantly in recent

weeks, already reflecting the upcoming reset ... 2025 is likely

to be a transition year."