Nestlé plunges - The world's largest food company is issuing a warning!

Global food giant Nestlé's stock price has plummeted to its lowest level since 2019, signaling unprecedented challenges in the consumer environment.

On July 25th local time, Nestlé closed at $100.01 per share, a sharp drop of 18%.

With growing concerns about a U.S. recession, signs of global fragmentation are increasing. Among the S&P 500 companies that have already released financial reports, only 43% have exceeded revenue expectations, the lowest level in five years.

Nestlé's Decline Unavoidable

On Thursday, Nestlé lowered its full-year sales growth forecast from the previous 4% to at least 3%, citing a slowdown in price increases as consumers become more cost-conscious.

In recent years, in response to rising costs from raw materials to logistics, Nestlé and many other packaged food manufacturers have raised product prices. Last year, the company raised prices by an average of 7.5%, but with easing inflationary pressures and consumer shifts to lower-priced brands, it began to slow down price hikes at the beginning of this year. In the first half of this year, Nestlé raised prices by an average of 2%, below analysts' expectations of 3%.

However, despite the narrowing price increases, Nestlé's organic revenue growth rate remains below expectations. The organic revenue growth rate in the first half of the year was 2.1%, lower than the expected 2.52%, with China's organic revenue growth rate at 1.6%, below the expected 3.51%, and even a 0.1% decline in the North American market.

Jefferies analysts stated that in this challenging consumer environment, the downward revision of expectations is a major concern for the company's profitability and brand strength. Goldman Sachs analyst De La Grense told clients:

"This is another blow following Nestlé's poor revenue performance for several quarters around last year, and the recovery growth in the second quarter seems insignificant. Price declines led to organic sales growth in the second quarter falling below expectations again, while the fiscal year outlook was lowered."

Nestlé's actual internal growth rate measuring sales volume increased by 0.1% during this period, higher than the widely expected 0.5% decline.

Several institutions have downgraded Nestlé's ratings. Deutsche Bank downgraded Nestlé from "Buy" to "Hold," UBS downgraded Nestlé from "Buy" to "Neutral," with a target price of 95 Swiss francs.

Goldman Sachs analyst Natasha Dragicevich also issued a warning to clients, stating that the consumer earnings season has started poorly, with few positive surprises so far, and both high-end and low-income consumption are weak.

Warning: Market Sentiment is Gloomy

Nestlé's decline is not an isolated case, as the phenomenon of "fragmentation" seems to have spread globally Previously, Nestlé CEO Mark Schneider stated in a conference call:

"Currently, consumer sentiment is relatively low, and the company has observed consumers seeking discounts in the United States, Europe, and China."

In addition to food companies, the market's enthusiasm for AI is also decreasing. The massive investments by large tech companies in AI and whether they can quickly generate returns have raised doubts among investors, leading to a decline in stock prices of companies like NVIDIA and Broadcom.

So far, nearly one-third of the companies in the S&P 500 index have reported their Q2 earnings, showing signs of slowing sales data. According to compiled data from the media, only 43% of companies have exceeded revenue expectations, marking the lowest level in five years.

Market concerns are also reflected in other areas. As doubts about the outlook for the U.S. economy deepen, investors are starting to reallocate funds, leading to turbulence in the bond and currency markets.

In the bond market, due to increased expectations of interest rate cuts and concerns about overly tight monetary policy, investors are rushing to buy short-term securities. On Thursday, the yield on the two-year U.S. Treasury bonds was briefly only 12 basis points higher than the 10-year Treasury yield.

In the currency market, the Japanese yen has rebounded from its previous weakness, becoming the best-performing currency among the G10 group of countries.

Meanwhile, the growing pessimism has also affected the metal market. Copper prices fell below $9,000 per ton for the first time since early April, down about one-fifth since hitting a record high in mid-May. Aluminum prices touched a four-month low this week before rebounding.

Market speculations suggest that the Federal Reserve may cut interest rates faster or by a larger magnitude than planned. Traders expect a rate cut of about 25 basis points by September, with a 20% chance of a significantly larger rate cut in 2024 exceeding 60 basis points.

On Thursday, Torsten Slok, Chief Economist at Apollo Global Management, stated: "If the economy starts to slow down, the speed is crucial. A faster slowdown will have a negative impact on returns and increase the likelihood of selling in the stock and credit markets."