Nestle First-Half Sales Beat Estimates on Higher Prices

Nestle First-Half Sales Beat Estimates on Higher Prices
Nespresso coffee capsules, manufactured by Nestle SA, in Vevey, Switzerland. Photographer: Gianluca Colla/Bloomberg

Nestle SA reported first-half sales growth that beat analysts’ estimates as the world’s biggest food company outpaced rivals in Europe and raised prices in the U.S.

Sales gained 6.6 percent, excluding acquisitions, divestments and currency shifts, the Vevey, Switzerland-based company said today in an e-mailed statement. The average of 10 analysts’ estimates was for a 6.3 percent increase. The shares rose as much as 3.4 percent to a record.

Higher prices led to sales gains of 5.7 percent in the Americas and 2.4 percent in Europe as volume in the regions was little changed. Nestle said U.S. revenue accelerated in the second quarter as it added products such as DiGiorno Pizza Dipping Strips, allowing it to beat sales growth of Danone, one of its main European competitors. Developed markets will remain difficult for the rest of the year, the company also said.

“Across the piste, it’s a pretty solid performance,” said Julian Lakin, head of research at Mirabaud in London. “Europe is tough and not getting any easier, but Nestle is doing a bit better there than expected, and in North America they’re getting some forward momentum.”

The stock traded 3.3 percent higher at 61.60 francs as of 12:37 p.m. in Zurich. The shares have gained 32 percent in the past year as Unilever advanced 27 percent and Danone 7.3 percent.

European Growth

Goods for lower-income consumers, which Nestle calls popularly positioned products, and premium items helped drive the growth in Europe during the first half, Chief Financial Officer Wan Ling Martello said on a conference call.

“To be able to get the kinds of numbers in developed markets where it’s very challenged from a macro perspective, innovation is going to continue to be key,” said Martello, who replaced Jim Singh in April.

Net income gained 8.9 percent to 5.1 billion Swiss francs ($5.3 billion), Nestle said. Total sales rose 7.5 percent to 44.1 billion francs. Nestle’s organic revenue growth was the slowest since the second half of 2010, according to Nomura estimates. The company doesn’t publish second-half growth rates.

Nestle reiterated its guidance for the year, saying it expects organic sales growth to meet its target of 5 percent to 6 percent. The KitKat maker also has a goal to widen its profit margin in constant currencies and boost earnings per share on the same basis.

Rivals’ Sales

Unilever, the world’s second-biggest consumer goods company, said July 26 that underlying sales, which exclude acquisitions, disposals and currency fluctuations, gained 7 percent during the first half. Danone, the world’s biggest yogurt maker, said the following day that revenue increased 5.9 percent during the same period. Procter & Gamble Co. said Aug. 3 that fourth-quarter organic sales growth was 3 percent.

Nestle’s volume rose 2.9 percent, in line with estimates, while price increases contributed 3.7 percent to sales growth, beating estimates of 3.5 percent. The food company has forecast raw-material price inflation at a “low to mid single-digit” pace in 2012.

Nestle’s volume growth in its Americas unit dipped 0.1 percent after a 0.4 percent decline during the first quarter. Volume growth in Europe was 0.1 percent after a 0.2 percent gain during the first three months of the year.

The trading operating margin narrowed 0.1 percentage point to 15 percent from the year-earlier period. The company said that’s in line with its expectations that this year’s margin improvement would be weighted to the second half.

Nestle has no plans for a share buyback at present, though the company remains open to the possibility, Martello said. While Nestle doesn’t plan to make any large acquisitions, it will consider bolt-on acquisitions, she added.

Organic sales at Nestle’s nutrition unit, which makes Gerber baby food and Jenny Craig weight-loss products, increased 5.7 percent in the first half. Nestle in April agreed to buy Pfizer Inc.’s infant-nutrition unit for $11.9 billion. The acquisition is expected to close in early 2013, according to Martello.

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