Fri, Feb 18, 2011 - Page 10 News List

Nestle beats sales estimates, predicts continued growth

WELL-POSITIONED:Analysts said the Swiss food giant’s strong brands and better pricing power would help it weather the effects of rising costs


Nestle SA, the world’s largest food company, reported sales growth last year that beat analysts’ estimates as consumers bought more Nespresso coffee capsules, and forecast higher revenue and margins this year.

Sales rose 6.2 percent excluding acquisitions, disposals and currency shifts, the Vevey, Switzerland-based company said yesterday, compared with the 5.4 percent average estimate of eight analysts.

Nestle said it’s “confident” organic revenue would rise 5 to 6 percent this year.

Profit last year more than tripled, boosted by a one-time gain from selling a stake in Alcon Inc, the company also reported.

“It’s clearly a better-than--expected result when many had expected fourth-quarter numbers to decelerate,” said Jon Cox, an analyst at Kepler Capital Markets with a “buy” rating on the stock. “The outlook statement is reassuring.”

The Purina pet-food maker said it expected an improvement in its operating margin excluding currency fluctuations this year, meeting its long-term goal.

Nestle didn’t announce a new buyback program in the statement.

ING Financial Markets analyst Marco Gulpers had said Nestle might announce a 10 billion Swiss franc (US$10.4 billion) buyback, Bank Vontobel analyst Jean-Philippe Bertschy said it might repurchase as much as 20 billion francs of additional stock.

Nestle said it would raise its dividend 16 percent to SF1.85 a share.

Net income rose to SF34.2 billion from SF10.4 billion in 2009.

Price increases boosted sales growth by 1.6 percentage points, the maker of KitKat bars and Lean Cuisine meals said.

Nestle derives about three-quarters of revenue from 30 brands that have sales exceeding SF1 billion, giving it more power than smaller rivals to pass higher commodity costs on to consumers, Gulpers said.

“Nestle, with strong brands in traditionally resilient categories such as instant coffee, petcare and confectionery, is better positioned than most,” Credit Suisse analyst Alex Molloy wrote in a report before the results.

Arabica coffee futures have soared 96 percent in the past year, while wheat has gained 71 percent. Kraft Foods Inc, the world’s second-largest food company, on Feb. 10 lowered its full-year earnings forecast because of rising commodity costs, while Unilever said increasing costs of raw materials would hit profitability this year.

“We see Nestle commanding better pricing power than both its key peers at present and we like the group’s over-exposure to North America versus its peers,” MF Global analyst Andy Smith wrote in a note before the results.

Nestle’s hedging policies help protect its margins, which will probably cap input cost inflation at about 5 percent this year even as the basket of commodities rises 12 percent, Nomura analyst David Hayes said.

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