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Nestle’s Pet Food, Nespresso Pods Help Boost Prices

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Pedestrians pass an advertisement for Nestle SA Nespresso coffee in Munich, Germany, on Tuesday, Aug. 10, 2010. Nestle SA, the world's largest food company, lifted its full-year forecast after sales rose faster than analysts anticipated in the first half as the company sold more Nespresso coffee. Photographer: Guido Krzikowski/Bloomberg

Oct. 21 (Bloomberg) -- Nestle SA’s direct sales of Nespresso coffee capsules and Purina pet food have given the world’s largest foodmaker an edge in pricing.

The maker of KitKat chocolate will probably say tomorrow that pricing added 1.5 percentage points to sales growth in the first nine months of 2010, the same as in the first half, according to the median estimate of 10 analysts.

By selling through Nespresso’s website and speciality retailers such as pet stores, Nestle faces less pressure on prices from supermarkets. About a third of revenue comes from those sources, compared with 15 percent for Groupe Danone SA and 11 percent for Unilever, ING analysts estimate. Nestle has 7,000 saleswomen who peddle goods door-to-door in Brazilian slums and uses carts to sell ice cream in the Philippines.

“Nestle stands out in pricing power,” said Marco Gulpers, an analyst at ING Wholesale Banking who has a “buy” recommendation on Vevey, Switzerland-based Nestle. “That also highlights why Nestle is much less volatile compared to Danone or Unilever.”

Unilever, the maker of Ben & Jerry’s ice cream and Knorr soup, has said it doesn’t expect prices to increase until the fourth quarter. Danone’s pricing rose 0.6 percent in the third quarter, counter to analysts’ predictions of a decline and the first growth in more than a year. Nestle has reported higher pricing each year for the past decade.

Paul Matthews, a spokesman for Unilever, and Nina Backes, a spokeswoman for Nestle, declined to comment on the ING estimates. Sabrina Schneider, a spokeswoman for Danone, didn’t respond to requests for comment.

U.S. Strategy

Nestle, Europe’s second-largest company by market value, is holding its nine-month sales press conference outside of Switzerland for the first time and will highlight its U.S. strategy. Chief Executive Officer Paul Bulcke, Chief Financial Officer Jim Singh, as well as the heads of Nestle USA, Nestle’s U.S. Nutrition unit, Purina and North America bottled water, will attend the New York briefing.

The company gets about a third of its sales from the Americas, compared with about 22 percent from Europe, where growth has been slower to recover from the global recession. Nestle bought Kraft Food Inc.’s frozen-pizza business this year to bolster its share of the U.S. food market and started selling its Dolce Gusto coffee systems this month at Wal-Mart Stores Inc., the nation’s biggest retailer.

Cash for Investment

The Swiss company is $28.3 billion richer after selling a stake in Alcon Inc. to Novartis AG. Nestle said in August it will “substantially” reduce net debt and Singh said in June the company prefers to use cash to invest in its own business or make acquisitions rather than buying back shares.

Nestle may say so-called organic sales, which exclude acquisitions and disposals, rose 5.6 percent in the third quarter, according to the median estimate, compared with 6.1 percent growth in the first six months of the year.

Danone, the world’s largest yogurt maker, said today that third-quarter revenue excluding acquisitions and currency shifts increased 6.9 percent, broadly maintaining the first half’s pace and beating analysts’ estimates. Lower pricing cut 1.7 percentage points from nine-month sales.

Unilever’s food and beverage comparable sales probably rose 3.4 percent in the third quarter, according to an estimate by Pablo Zuanic, an analyst at Liberum Capital. The company, which is based in London and Rotterdam, is scheduled to report earnings on Nov. 4.

‘Affordable Treats’

Analysts expect Nestle to announce a “robust operating performance in spite of the challenging macro conditions,” wrote Nic Sochovsky, an analyst at Unicredit in London. He rates the shares “buy,” citing the company’s pricing “discipline.”

Nestle shares have advanced 14 percent in the past year, compared with a 5.2 percent increase for Paris-based Danone and a 1.4 percent gain for Unilever.

The Swiss company’s ability to charge more is helped by its strength in products whose sales tend to resist price increases, according to David Hayes, an analyst at Nomura. Nestle ranks as the world’s biggest maker of coffee, bottled water, shelf-stable milk, baby formula, pet food and frozen pizza.

Shoppers will cut spending on their family before turning to cheaper pet-food brands, Bulcke has said.

“Nestle benefits compared to its peers on a number of counts -- much of its portfolio is in affordable treats or necessities which are resistant to downtrading,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich.

To contact the reporter on this story: Tom Mulier in Geneva at

To contact the editor responsible for this story: Celeste Perri at

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