* Net profit falls below forecasts
* Organic sales growth slows to 3.2 pct
* Lowers 2017 target to 2-4 pct growth
* New CEO says not right time for big M&A
(Adds fresh CEO, analyst comments, shares)
By Silke Koltrowitz
VEVEY, Switzerland, Feb 16 Nestle's new
chief executive scrapped the food company's long-standing sales
target as it reported disappointing annual results on Thursday,
echoing rivals by striking a cautious tone in an uncertain
Nestle is the biggest player in a packaged food industry hit
by a slowdown in emerging markets, falling prices in developed
markets and consumers demanding fresher, healthier products.
The maker of Kitkat chocolate bars and Nescafe coffee is
aiming to increase underlying sales by 2 to 4 percent this year,
below its "Nestle Model" that called for growth of 5 to 6
percent. It posted weaker-than-expected 3.2 percent growth for
2016 and a drop in profits.
CEO Mark Schneider, who joined Nestle only last month,
forecast a return to "mid-single-digit" growth by 2020, which
analysts interpreted as the new boss backing away from a target
the company has missed for four successive years.
"In a more turbulent environment, to narrow it specifically
to 5 to 6 percent is probably not the right thing, but the
underlying message is the same: there's nothing better than
healthy organic growth," Schneider said at Nestle's Vevey
Analysts estimated that underlying earnings assumptions
could be reduced by around 3 percent.
In his first public appearance at Nestle, Schneider,
responsible for a string of deals at German healthcare company
Fresenius, also played down the chances of any big
acquisitions. Valuations were too high and Nestle planned to
keep its credit rating in the near term, he added.
He did, however, say Nestle's portfolio review was ongoing.
In recent years, the company has sold several
underperforming brands and formed a joint venture for its ice
cream business. Analysts and bankers often speculate about other
businesses that could be sold, such as its confectionery or U.S.
frozen meals businesses.
Asked about Nestle's 23 percent stake in French cosmetics
firm L'Oreal, Schneider said any moves would have to
be done "very prudently".
Nestle's shares were down 1.9 percent at 71.75 Swiss francs
at 1240 GMT.
NEW BOSS, SAME PROBLEMS
Since his surprise appointment last year, analysts and
investors have wondered how Schneider would reignite Nestle's
growth and whether he would accelerate the recent push into
higher-margin nutrition, health and wellness products.
Schneider said he was fully committed to the health drive
and would stick to the two-fold strategy of making Nestle's core
food products healthier, such as by cutting sugar, while
building up its health science and skin health businesses.
RBC Capital Markets analysts said Schneider's initial
observations "were carefully thought through and to the point".
Jefferies analyst Martin Deboo said Nestle capped a subdued
earnings season, with average organic growth for the big four
food and personal care companies -- Nestle, Unilever,
Danone and Reckitt Benckiser - slowing to a
weaker-than-expected 2.1 percent.
"We expect ... investors to continue to ask whether 'the
model is broken' on the back of this," he said about the sector.
European consumer goods companies face challenges from local
rivals in emerging markets, weaker earnings potential and more
aggressive cost-cutting from American companies pressurised by
the growing presence of private equity firm 3G Capital.
European food and beverage stocks fell 12 percent
from October to December, underperforming the broader European
market by 15 percent. They have not fallen further during the
reporting season, suggesting that those challenges are priced
Unilever cited problems in Brazil and demonetization in
India, while Danone pointed the finger at tough
conditions in China.
In 2016, Nestle's net profit fell to 8.5 billion Swiss
francs, well below forecasts, and sales rose less than expected
to 89.5 billion Swiss francs ($89.3 billion), up 3.2 percent on
an organic basis.
Schneider said already accelerating volume growth was
encouraging and he also expected pricing to improve this year.
The company forecast a "stable" trading operating profit
margin in 2017, due to expectations for increased restructuring
costs of around 500 million Swiss francs ($498 million).
It proposed to increase its dividend to 2.30 francs per
share, after 2.25 francs last year.
($1 = 1.0038 Swiss francs)
(Additional reporting by Martinne Geller, Angelika Gruber;
Editing by Michael Shields/Keith Weir)