‘No specific concern on confectionery,’ says Nestlé CFO after flat Q1 performance

By Oliver Nieburg contact

- Last updated on GMT

Brazil economic slowdown leads to flat confectionery sales for Nestlé. Photo: iStock/robtek
Brazil economic slowdown leads to flat confectionery sales for Nestlé. Photo: iStock/robtek
Nestlé’s confectionery business has posted flat real internal growth in the first quarter 2016 triggered by an economic slowdown in Brazil and an earlier Chinese New Year.

Sales in the company’s confectionery division were CHF 1.96bn ($2.03bn) in Q1 (Jan-Mar 2016).

This represents a 5.7% like-for-like drop on the same period last year, but Nestlé reported 2.8% organic growth and 0.3% real internal growth.

Brazil’s economy and Chinese New Year

Francois-Xavier Roger, CFO at Nestlé, said the company’s flat confectionery performance was driven by slow economic growth in Brazil and an earlier Chinese New year.

Chinese New Year fell on February 8 this year compared to February 19 in 2015. Roger said this meant some seasonal confectionery sales for the event came instead in Q4 last year.

Confectionery: Sixth of seven category

Confectionery was Nestlé’s sixth largest revenue contributor of the group’s seven categories in Q1. The company’s highest revenues came in powered & liquid beverages and nutrition & health science. 

We saw a clear slowdown of volume in Brazil,” ​added the Nestlé CFO.

Brazil is Nestlé’s largest confectionery market, but its confectionery volumes fell in the declining economy. Brazil posted a 1.4% gross domestic profit decline in Q1, according to Trading Economics global macro models.

Divesting non-strategic brands?

Jean-Philippe Bertschy of Bank Vontobel said during Nestlé’s earnings call he was surprised Nestlé’s confectionery unit posted flat growth since Russia and some European markets had performed well.

He asked if Nestlé was sticking by confectionery or would like to divest non-strategic brands.

Nestlé competitor Mondelēz recently sold brands such as Terry’s and Carambar​ to French investment firm Eurazeo to concentrate on its power brands.

No concerns in confectionery: Nestlé

kitkatchina
KitKat launched in China via Walmart in December 2015. Source: Nestlé

But Roger was upbeat about Nestlé’s confectionery division.

“Our business is growing in confectionery. The pricing has slowed down, because we had less pricing in emerging markets. Volume-wise we are slightly positive – we expect to be at a better level in the future.”

He continued: “We continue delivering very good results with KitKat across all geographies. So no specific concern on confectionery.”

Roger added Nestlé’s 60%-owned Chinese joint venture Hsu Fu Chi was performing well.

Nestlé launched its bestselling confection KitKat in China​ last December through Hsu Fu Chi and has reported initial success in nationwide Walmart stores.

The standout markets

Roger also highlighted Russia, Italy and Germany as strong confectionery markets for Nestlé in Q1.

In Germany, Nestlé trailed chocolate confectionery market leaders Ferrero and Mondelēz in 2015 and was behind top sugar confectionery firm Haribo by retail value sales, according to Euromonitor International figures.

In 2015, Nestlé was also behind market leader United Confections in chocolate and sugar confectionery in Russia, but the Swiss firm had joint top market share in chocolate with Ferrero in Italy.

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