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Nine-month results

Nestlé confectionery division ‘remains under pressure’

By Oliver Nieburg+

25-Oct-2016
Last updated on 25-Oct-2016 at 14:04 GMT2016-10-25T14:04:51Z

'We are addressing our challenges in confectionery through innovation and marketing support behind our brands,' says Nestlé CFO. Photo: Nestlé
'We are addressing our challenges in confectionery through innovation and marketing support behind our brands,' says Nestlé CFO. Photo: Nestlé

Nestlé hopes innovation and marketing support can restore growth to its confectionery division, which remains challenged in Brazil, the US and the UK.

The company’s like for like confectionery sales were down 3.6% in the first nine months of 2016 (January to September), Nestlé reported last week.

Its confectionery segment posted organic growth of just 1.6% and a real internal growth (RIG) decline of 1.4% to CHF 5.9bn ($5.9bn) in the nine months.

Over the same period, the Nestlé Group posted 3.3% organic growth and 2.5% real internal growth, taking sales to CHF 65.5bn ($65.9bn). Group like for like sales were up 1%.

Challenges in the US, UK and Brazil

“Confectionery remains under pressure with negative RIG,” said Nestlé CFO François-Xavier Roger during an earnings call.

“We faced challenges in the mainstream chocolate market in the US as well as some softness in Brazil and also in the UK.

“KitKat continues to do well globally. We are addressing our challenges in confectionery through innovation and marketing support behind our brands,” he said.

The company has implemented confectionery price increases in Brazil to combat declines.

Garoto intergration

This month, Brazil’s competition authority set out guidelines Nestlé must meet to fully intergrate confectionery business Garoto. The guidelines were not made public under the decisional order.

Nestlé announced plans to acquire Chocolates Garoto in 2002 for around $240m, but the Brazilian competition authority (CADE) vetoed the move in 2004  , fearing it would hinder competition in the domestic chocolate market.

Since 2004, Nestle has been the owner of Garoto, but Garoto has operated as a separate manufacturing and administrative operation.

Brexit impact

Nestlé CFO Roger said the UK had been “more challenging” since the first half of the year, but did not reference the nation’s vote to leave the European Union in June.

Nestlé CEO Paul Bulckle said he was waiting for the “dust to settle” on Brexit. He said local teams in the UK would decide on any pricing action, but was confident KitKat would remain strong in the UK in the short term.

Nestlé produces 90% of group products for the UK in the home market, but it does import commodities such as cocoa and coffee to its UK factories.

US market

Confectionery is Nestlé’s second smallest of seven global operating segments by sales ahead of water.

Jean-Philippe Bertschy, an analyst at Bank Vontobel told this site in August that Nestlé may consider its confectionery presence in the US as it was a distant number four player with a 5% market share.

Nestlé CFO Roger said that the entire US confectionery category remained difficult with pressure on all players.

The company last week downgraded its full year guidance. It now expects full-year organic growth of around 3.5% in 2016. Nestlé had previously forecast 4.2% organic growth, in line with 2015 results.

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