What's going on?
The world’s largest food and drinks company, Nestle, reported somewhat disappointing sales growth for 2015 and its stock sold off 4%.
What does this mean?
Nestle makes lots of different types of food (chocolate bars, Nescafe coffee and, even, cat food), so it’s a good barometer of the food industry. Its CEO warned of “even softer pricing” for 2016 which speaks to a broader downward pressure on food prices – which is, perhaps, similar to what Wal-Mart is experiencing (see above). Additionally, it did not announce that it would buy back some of its shares as some investors had thought it might – that contributed to the stock selloff (as buying back stock means that the remaining shareholders own a greater proportion of the company).
Why should I care?
For the bigger picture: Where’s the growth? Nestle’s long-term growth target is 5-6% per year, but it’s missed that for a fourth year in a row. In a world where global growth is slow (and apparently slowing further), it’s tough for a big, broad company such as Nestle to increase its growth rate (the same is true for peers like Unilever and Danone).
For you personally: A weak pricing environment for Nestle is another sign of low inflation. The cost of things like coffee and cocoa have declined and Nestle, forced by competition from others, is passing those lower costs on to the consumer. While it’s not good for Nestle’s sales growth, it’s probably good for your bill at the grocery store. And given this trend is evident at two of the world’s biggest food retailers (e.g. Nestle and Wal-Mart), it’s clearly important for companies and consumers globally.