sales growth


China July industrial output growth falls to 17-yr low as trade war escalates, retail sales disappoint

BEIJING: China reported a raft of unexpectedly weak July data on Wednesday, including a surprise drop in industrial output growth to a more than 17-year low, underlining widening economic cracks as the trade war with the United States intensifies.

Industrial output grew 4.8% in July from a year earlier, data from the National Bureau of Statistics showed on Wednesday, lower than the most bearish forecast in a Reuters poll.

Analysts had forecast industrial output growth would slow to 5.8%, from June’s 6.3% growth, amid weakened demand at home and abroad. The United States had sharply raised tariffs on a large share of its Chinese imports in May.

Despite more than a year of growth boosting measures, Wednesday’s data showed China’s domestic demand remains sluggish, with gloomy July factory surveys, stubbornly soft imports and weaker-than-expected bank lending data released in recent days reinforcing views that Beijing needs roll out more stimulus soon to support the economy.

Retail sales growth was also weaker than the most pessimistic forecast, after a jump in July that many analysts had predicted would be temporary.

Retail sales rose 7.6% in July from a year earlier, compared with 9.8% in June and analysts’ expectations of 8.6%.

Fixed-asset investment rose 5.7% in January-July from the same period last year, lagging expectations of a 5.8% gain, the same as Jan-June.

But investment readings by sector showed a more marked loss of momentum in key sectors at the start of the third quarter.

Private sector fixed-asset investment, which accounts for about 60% of the country’s total investment, grew 5.4% in January-July, compared with a 5.7% rise in the first sixth months of 2019.

Property investment grew 10.6% in the first seven months of the 2019 on-year, slowing from 10.9% in Jan-June. The sector has been one of the few bright spots in China’s economy.

China’s economy has been slow to respond to a flurry of support measures rolled out since last year, with growth cooling to a near 30-year low in the second quarter. Business confidence also remains shaky, weighing on investment.

Investors fear a longer and costlier trade war between the world’s two largest economies could trigger a global recession.

Already, the tariff row has hit world trade, investment and corporate profits. It is also pushing some Chinese manufacturers to move capacity to neighbouring countries and rebuild supply chains outside of China.

China’s industry ministry said in late July that the country would need “arduous efforts” to achieve 2019’s industrial output growth target of 5.5% to 6.0%, citing trade protectionism pressures.

Analysts say Beijing will need to deliver more stimulus to prevent a deeper downturn and to help stabilise growth.

That view was reinforced earlier this month when a brief ceasefire in the trade war was shattered after U.S President Donald Trump vowed to impose a 10% tariff on $300 billion of Chinese imports from Sept. 1.

Such a move would extend levies to effectively all of the goods China sells to the United States. But in an apparent effort to blunt their impact on U.S. holiday sales, Trump on Tuesday delayed duties on some Chinese imports including cellphones, laptops and other consumer goods.

Sources told Reuters recently that more aggressive action such as interest rate cuts are a last resort, as it could fuel a sharper build-up in debt.

Despite prodding from Beijing, several bankers have told Reuters they have little appetite to lend to smaller companies due to the uncertain economic outlook, the trade war and a years-long drive to purge risks from the financial system. Some firms also say banks are sharply reducing credit lines. – Reuters

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Nestle overhaul speeds up as it posts fastest sales growth in 3 years

ZURICH: Food giant Nestle posted its fastest organic sales growth in three years on Friday as the KitKat chocolate bar maker’s recovery under Chief Executive Mark Schneider gathered pace.

Makers of packaged foods have been struggling to adjust to consumers’ growing appetite for fresh foods deemed healthier and intense competition from small local startups offering goods ranging from breakfast cereals to coffee and chocolate.

Since taking over in 2017, Schneider, the first outsider to lead Nestle in a nearly a century, has pushed the company into new areas such as plant-based foods, revamped big brands like Nescafe instant coffee and axed under-performers like its U.S. confectionary operation.

Nestle’s organic sales, which strip out currency swings and acquisitions and disposals, accelerated to 3.9% in the three months to the end of June, the highest quarterly rate since the beginning of 2016.

For the half year, it matched analyst expectations for 3.6% growth, an improvement over 2.8% in the year-ago period, and is now on track to meet its target of mid single-digit organic growth by the end of 2020, Schneider told reporters.

“People see good momentum in the company both on growth and earnings and that is not something we would expect to stop in 2020, so the momentum should continue,” Schneider said.

“I think the results show very convincingly we are on a path to meeting those,” he said, referring to Nestle’s targets.

Net profit at the world’s largest food company fell 14.6% to 5.0 billion Swiss francs ($5.05 billion), as the year-ago period benefited from a $2.8 billion one-off gain linked to selling its U.S. confectionery business to Ferrero.

Nestle’s trading operating profit margin improved to a better-than-expected 17.1% as the company pressed ahead with its premiumisation strategy, selling more products with fatter margins and more resilient to economic downturns.

Nestle now gets around 23% of its sales from products such as its rose chocolate flavoured KitKats and flavoured San Pellegrino water, a figure Schneider expected to rise.

“Premium overall is doing very well for us, it tends to be very successful for the top line and the bottom line. That applies to all geographies … and all categories,” he said.

Nestle’s first-half sales rose 3.5% to 45.46 billion francs, short of forecasts of 45.7 billion francs, with the United States and Brazil, Nestle’s number 1 and number 4 markets, doing well.

China, its second biggest market, saw softer growth as categories like mainstream baby foods struggled compared with pricier options.

“We are a little more concerned there by the environment at large,” Chief Financial Officer Francois-Xavier Roger said.

French rival Danone on Thursday reported accelerated sales growth in the second quarter as its baby food products sales in China rebounded.

Nestle confirmed its guidance, saying it expects full-year organic sales growth around 3.5% and an underlying trading operating profit margin at or above 17.5%.

Analysts described the outlook as cautious, although Schneider said Nestle faced tougher comparisons in the second half of the year and higher commodity prices.

They also highlighted the improvement in margins and organic growth.

“What a change at Nestle within a short period of time,” said Bank Vontobel analyst Jean-Philippe Bertschy. “Under the leadership of Mark Schneider, Nestle is being propelled to a higher level of growth and returns.

“This is coming at an even quicker pace that anticipated.”

Amazon pays a price for one-day delivery as profit growth slows

WASHINGTON: Amazon appeared to pay a hefty price for its move to speedy shipping, as the online giant reported profits below expectations as it ramped up for one-day deliveries.

Profits edged up just 3.6 percent to $2.6 billion in the past quarter, a figure below most Wall Street forecasts.

Revenues rose 20 percent to $63.4 billion in the April-June period for the company, a dominant force in retail with its Prime subscription service which is moving from two-day to one-day delivery on most items.

“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” said chief executive Jeff Bezos in a statement.

“Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started.”

But analysts said the costs of ramping up infrastructure were eroding profits.

Bottom-line woes

“The additional shipping expenses have taken their toll on the bottom line,” said Neil Saunders of the research firm GlobalData Retail, who added that Amazon is being forced to make these investments due to tougher competition from rival retailers like Walmart and Target.

“Traditional retailers like Walmart and Target are ramping up their e-commerce efforts and have the advantage of being able to offer collection from stores for shoppers wanting to obtain products quickly,” Saunders said.

“By and large, Amazon has no such benefit, so it had to neutralize it by offering faster shipping for free.”

Moody’s Amazon Analyst Charlie O’Shea said Amazon profits were hit by “margin compression in North America due to the investments in next-day Prime delivery.”

O’Shea said the shift to one-day delivery for many Prime items “is an example of short-term pain for long-term gain, and is a necessary strategy to compete with brick-and-mortar’s speed advantage to the customer.”

On a conference call, Amazon chief financial officer Brian Olsavsky said investments to speed up shipping have hit profits but that this would pay off in the long run.

“It does create a shock to the system, we’re working through that now, and we expect we will be working to that for a number of quarters,” he said.

“But when the dust settles, we will regain our cost efficiency over time.”

Amazon Web Services, the cloud computing division which is a key profit driver for the company, saw revenue gains of 37 percent in the quarter.

O’Shea said AWS “continues to chug along and provide a significant buffer to the retail operations.”

Amazon — which has expanded from its origins in e-commerce to cloud services, streaming media, artificial intelligence and brick-and-mortar grocery stores — saw shares slip 0.5 percent in after-hours trade on the results, which showed profits below forecasts but better-than-expected revenues.

The latest results did not include sales from Amazon’s big Prime Day two-day sales event, said to have been a record.

Amazon has been delivering consistently robust profits in recent quarters after years of thin margins, as the company has grown into one of the world’s most valuable, making Bezos the world’s richest person. – AFP