(Bloomberg) -- Nestle SA lowered its sales outlook for the year as consumers balk at price increases on branded food, water and pet-care products that had driven revenue growth during a post-pandemic bout of inflation.
The Swiss company said it now expects sales to grow at least 3%, lower than the roughly 4% previously targeted. The world’s biggest food company has struggled to win back market share after shoppers switched to cheaper alternatives.
Shares of Nestle fell as much as 5% Thursday in Zurich and they’re down about 14% for the past 12 months. The outlook downgrade is “somewhat of a cold shower - unlikely to reassure the bears,” said Vontobel analyst Jean-Philippe Bertschy while saying it was wise to provide more realistic guidance.
Revenue rose 2.1% in the first half, compared with the 2.5% expected by analysts, the maker of Nespresso and Purina said.
Almost all of that growth came from higher pricing, which sharply slowed in the second quarter. Nestle’s coffee business, boosted by the rising price of the commodity, was the highest contributor to organic growth, increasing in the mid-single digits.
Faced with lower growth, Nestle could face pressure to cut costs more aggressively and consider whether acquisitions or disposals are needed to drive profitability.
After a period of high input cost inflation, Nestle has been building back its gross margin: It rose to 47% in the first half from 46% two years ago, but remained below 2021 levels.
“We are still in repairing mode,” Chief Executive Officer Mark Schneider said on a call with journalists. The gross margin will come under pressure in the second half because of higher coffee and cocoa prices, he added.
Schneider has turned to product launches — including a range devised for people taking GLP-1 weight-loss drugs — to convince investors that the company has room left to grow. The GLP-1 range will hit the shelves at the end of the third quarter.
(Updates with analyst comment in third paragraph. A previous version corrected an erroneous product reference.)
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