Nestle SA (NESN), the world’s biggest food company, said revenue growth is likely to be at the top end of its forecast range this year after reporting the biggest sales increase since the first half of 2008.
Sales excluding acquisitions, disposals and currency shifts rose 7.5 percent in the six months ended June 30, the Vevey, Switzerland-based company said today. Nestle, which targets a 5 percent to 6 percent annual gain, also predicted higher margins.
The growth in so-called organic sales beat the 6.5 percent average estimate of analysts surveyed by Bloomberg, led by a 12 percent gain in Asia. Nestle is pushing products for lower-income consumers into more rural regions of Asia as it aims to sell the items in a million stores by next year. The guidance on annual sales is “cautious,” Chief Financial Officer Jim Singh said on a conference call with analysts.
“Another vintage performance,” said Simon Marshall-Lockyer, an analyst at Jefferies International Ltd. in London with a “buy” recommendation on the shares. Sales growth in Europe and the Americas was stronger than expected, he said.
Nestle climbed as much as 1.15 Swiss francs, or 2.5 percent, to 47.85 francs in Zurich trading. The shares traded up 1.7 percent at 47.50 francs at 11:36 a.m.
Nestle also said today it decided against buying back more shares after repurchasing 35 billion francs ($48.4 billion) worth since 2007. The decision may disappoint some investors and lead to increased speculation that the company may seek to acquire Pfizer Inc.’s infant-nutrition business, according to Jon Cox, an analyst at Kepler Capital Markets in Zurich.
Nestle is likely to bid for the Pfizer unit, which the U.S. drugmaker said July 7 it may sell or spin off, according to people with knowledge of the process. Danone and Abbott Laboratories probably will also bid for the business, which may fetch as much as $10.5 billion, the people said.
Nestle is looking for acquisition opportunities “all over the world,” Singh said, adding that the company is focused on “bolt-on” deals in categories of strategic importance.
“Our clear priority is to invest in our business, either internally or externally,” Singh said. Nestle’s “next priority is to return cash to shareholders,” he said, adding that the company aims to increase its dividend next year.
Nestle agreed last month to buy a stake in snack and candy maker Hsu Fu Chi International Ltd. to expand in China, where the company’s infant nutrition business has seen its market share dwindle since 2005, when it withdrew two varieties of milk powder after authorities found they contained too much iodine.
Sales were helped by pricing increases of 3.8 percent in the second quarter, more than the first quarter’s 1.5 percent.
Nestle said it expects higher prices to have “a fuller impact” in the second half of the year. The company expects continuing “challenging conditions” including political and economic instability and volatile raw-material prices.
“Nestle, Danone and Unilever are all reporting volume growth,” said Chris Wickham, an analyst at Matrix Corporate Capital in London. “The message on European food manufacturers is they’ve got a very good strategic bias towards healthy food and emerging markets, which the American companies haven’t.”
Unilever, the maker of Dove soap and Magnum ice cream, last week reported the highest quarterly price growth since 2009 after introducing products including Knorr jelly bouillon in new markets and passing on costs. Danone posted first-half sales growth of 8.7 percent in July.
Net income at Nestle fell to 4.7 billion francs in the first half, after the company sold its stake in Alcon last year and earnings were eroded by the strength of the Swiss franc and higher raw-material costs. That was higher than the 4.61 billion francs anticipated by analysts.
Nestle said June 8 that raw-material inflation this year would probably be near the high end of the company’s forecast range of 2.5 billion francs to 3 billion francs. Chief Executive Officer Paul Bulcke has said inflation will probably accelerate, especially in emerging markets, though global growth should continue. Higher input costs hurt profitability at the company’s water business as expenses for plastic and transport rose.
Nestle last year sold a majority stake in Alcon, a maker of contact-lens solutions, to Novartis AG for $28.3 billion.
The competitive environment in North America is “tough,” according to the bottler of Poland Spring waters.
Organic revenue from Nestle’s Americas unit increased 5.6 percent, fuelled by growth in its pizza business and sales of Nescafe soluble coffee. Revenue from the Europe unit increased 4.1 percent, helped by sales of its Maggi Juicy Roasting and Nescafe Dolce Gusto products. Nestle had “strong performances” in countries including France, Italy and Switzerland.
Organic sales at Nestle’s nutrition unit grew 8.8 percent during the first half, though profitability weakened. The company’s Jenny Craig weight-loss business had a “tough” first half in North America because of the weak economy and a “high level” of pressure from competitors, Nestle said.
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