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Nestle Says Revenue Will Beat Target on Higher Nescafe Prices

Nestle Expects to Beat Sales Target in 2011
Jars of Nescafe freeze-dried coffee move along the production line at the new Nestle factory in Timashevsk, Russia, on Tuesday, Oct. 18, 2011. Photographer: Alexander Zemlianichenko Jr./Bloomberg

Nestle SA, the world’s biggest food company, raised its 2011 sales forecast after nine-month revenue rose at the fastest pace in three years, helped by higher prices for Nescafe soluble coffee and increased volume in Asia.

Revenue on a comparable basis will “slightly” beat a long-term target of 5 percent to 6 percent this year, the Vevey, Switzerland-based KitKat maker said today. Nestle previously said it expected to reach the upper end of the range. Nine-month sales on the same basis increased 7.3 percent, beating the 7.2 percent average estimate of 17 analysts surveyed by Bloomberg.

Nestle is passing on rising raw-material costs to consumers in the form of higher prices, while adding new products like Maggi Juicy Roasting cooking aids. Still, the maker of Gerber baby food said consumer sentiment in North America and Europe has worsened and stopped short of repeating its confidence in expanding margins this year amid increased competition.

“Nestle is finally feeling the pinch of deteriorating consumer sentiment in the U.S.,” said Marco Gulpers, an analyst at ING Financial Markets.

Nestle said today it’s “striving” to expand margins at constant currency rates this year, after saying in August that it was “confident” of doing so. The company is “not talking about a miss on margin,” Roddy Child-Villiers, head of investor relations, said on a webcast. He said competition has increased.

Beating Goal Again

This would be the second year in a row Nestle beats its long-term sales target. Comparable revenue rose 6.2 percent in 2010.

Nestle still expects raw-material expenses to jump as much as 3 billion Swiss francs ($3.3 billion) this year and declined to provide guidance on input costs for 2012.

Commodity prices will probably remain high, though price increases may be more “normal” going forward, Chief Executive Officer Paul Bulcke said.

The shares fell 0.5 percent to 51.30 Swiss francs at the close in Zurich. The stock has lost 6.3 percent this year.

Higher pricing added 3.2 percentage points to nine-month sales growth, while volume rose 4.1 percent, the company said.

“It would take a sharp and totally unexpected slowdown in the fourth quarter for Nestle not to more than slightly over-deliver” on its revenue objective, Andrew Wood, an analyst at Sanford C. Bernstein, wrote in a note.

‘Best in Class’

Sales of Nescafe Dolce Gusto coffee boosted growth in Europe, where comparable revenue climbed 3.8 percent. Yogurt maker Danone had revenue growth in Europe of 0.1 percent on a comparable basis during the third quarter.

“What Nestle does, and what none of the other food companies do, is grow strongly in western Europe,” said Jon Cox, head of Swiss research at Kepler Capital Markets. “That’s why they’re the best in their class.”

While revenue at Nestle’s Americas unit increased 5.6 percent during the nine months, boosted by Lean Cuisine snacks and DiGiorno Pizza Combos, volume in North America shrank in the third quarter. The Jenny Craig weight-loss unit faced “intense” competition in the U.S., Nestle said.

Sales at Nestle’s Asia, Oceania and Africa unit increased about 12 percent in the nine months.

Nestle repeated that it’s not planning another share buyback at the moment. The decision in August not to start a program sparked speculation that Nestle might be saving cash for acquisitions. The company is “focused” on investing in its own business, it said today, as it also seeks bolt-on purchases.

M&A Budget

Nestle expects to spend between 4.5 billion francs and 5 billion francs this year on acquisitions and a similar amount on capital expenditure, according to Chief Financial Officer Jim Singh.

Group revenue fell to 60.9 billion francs from 70.4 billion francs a year earlier, hurt by a strengthening of Switzerland’s currency and the sale of a stake in eye-care company Alcon Inc.

The dollar was 23 percent lower against the franc and the euro was worth 12 percent less during the period, reducing the value of sales from outside Switzerland when translated into Nestle’s home currency.

In addition to total revenue, Nestle reports so-called organic sales on a basis that excludes acquisitions, divestments and currency swings to help comparisons.

Organic sales at Nestle Waters increased 4.7 percent, driven by “double-digit” growth in emerging markets. The company owns the world’s largest bottled-water brand, Pure Life.

Revenue from the nutrition unit, which makes Nan baby food and Jenny Craig weight-loss products, increased 7.6 percent on higher demand for baby food.

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