VEVEY, SWITZERLAND — Nestle SA reined in its full-year sales guidance, as chief executive officer Ulf Mark Schneider cited a tough consumer environment in reporting improved but mixed results for its fiscal 2024 first half.

Net earnings in the first half came in flat at 5.6 billion Swiss francs ($4.98 billion), though a gain in net profit margin lifted earnings per share by 1.8% to 2.16 Swiss francs ($1.92) on a reported basis. In constant currency, underlying EPS rose 3.3% to 2.51 Swiss francs ($2.23), while reported underlying EPS was down 1% to 2.40 Swiss francs ($2.13).

Companywide organic growth for the first six months of the year edged up 2.1%, reflecting real internal growth (RIG) of 0.1% and a 2% uptick in pricing, according to Nestle. The global food and beverage giant said reported sales fell 2.7% to 45.05 billion Swiss francs ($40.05 billion) from 46.29 billion Swiss francs in the prior-year period, including negative impacts of 4.4% from foreign exchange and 0.4% from net divestitures. That compared with 1.4% organic growth and a 5.9% decrease in reported sales for the first quarter.

“As we enter the second half of the year, we remain confident of our RIG momentum, but the pricing environment has become more challenging,” Schneider said in remarks on first-half results. “The general context is that consumers are under pressure, driving higher price elasticity, particularly in the US market. Increasingly, this has contributed to pressure on pricing as consumers seek value. The swing factor lately is increasing competitive intensity to address this environment. Retailers are competing for their share of a tighter consumer budget. Food and beverage companies, in turn, are responding with a whole new level of promotional intensity across categories. We have seen pricing coming down faster and are now reflecting it in our outlook.”

Nestle trimmed its full-year 2024 growth forecast for organic sales to “at least 3%” from the previous projection of “around 4%.” Likewise, the company now expects mid-single-digit growth in underlying EPS in constant currency, down from the earlier estimate of a 6% to 10% increase. The prior outlook of a moderate gain in underlying trading operating profit margin was reaffirmed.  

“Given how the environment has unfolded, we consider it prudent to amend our guidance for the full year,” Schneider said.

For Nestle’s North American business, underlying trading operating profit was flat at 2.7 billion Swiss francs ($2.4 billion) for the first half, with margin ticking up 20 basis points to 21.8%. Pricing was up 1.4%. Reported sales dipped 2.5% to 12.23 billion Swiss francs ($10.87 billion) from 12.55 billion Swiss francs a year earlier. Organically, growth was down 0.1%, with RIG for the half declining 1.5% but turning positive in the second quarter at 2.8%. Foreign exchange had a negative impact of 2.5%.

“We said North America would see a RIG improvement in the second quarter, and the zone delivered that,” said Anna Manz, chief financial officer at Nestle. “The RIG swing from negative 5.8% in the first quarter to positive 2.8% in the second was significant. The second quarter RIG benefited from larger-than-usual orders from some retailers ahead of key July promotional campaigns. This phasing impact means that the zone’s continued RIG improvement won’t be linear in the second half.”

In North America, Nestle said it generated market share gains in pet food and coffee for the first half but saw share shrinkage in frozen pizza and coffee creamers.

“Purina PetCare continues to be the largest growth contributor, gaining RIG momentum and market share despite ongoing category normalization post-COVID and the recent inflation spikes,” Manz explained. “In addition, Zone North America progressed on the turnaround of frozen food, which swung from negative growth in the first quarter to positive in the second. New product launches in this business included expanded offerings for DiGiorno’s Ultra-Thin Crust pizzas and Stouffer’s Classic Single Serve. These innovations are aimed at catching those consumers who are seeking more affordable price points.”

By product category, the North American business tallied sales growth of mid-single digits in pet care, water and flavored water and confectionery, the latter led by Toll House in the United States and Kit Kat in Canada, Nestle said. Sales were roughly flat in beverages but decreased in infant nutrition and frozen food, a category that Nestle said is experiencing soft consumer demand and stiff price competition.

“Overall, in zone North America, we are seeing improving market share trends, largely driven by high-growth channels that are not widely tracked by third-party providers,” Manz said.

Those channels include e-commerce, warehouse clubs and pet specialty stores, which had double-digit sales growth in the second quarter and represented 80% of the North American zone’s quarterly growth.

“It’s very important that we do not over-interpret this snapshot here of Q2 2024 and now see that as the movie unfolding going forward,” Schneider told analysts in a July 25 conference call, referring to Nestle’s companywide results. “This is a very particular moment in time, with some tricky year-over-year comparisons, since we had taken price in some categories and geographies in Q2 last year. Also, it’s a moment in time where we’re still seeing significant value-seeking behavior on the part of the consumer, their stress in particular at the low end of the income scale in North America but also in select other geographies.”

Nestle has been “particularly strong” in its promotional intensity, Schneider noted. “From past quarters, we were very much focused on getting the RIG flywheel moving again, and that's very important for continuous and sustained success. But we’re in no mood here to buy RIG going forward. Clearly, your RIG needs to be earned through compelling product and brand propositions going forward.”