Tags: Nestle | Pace | Growth | Price | Hikes | earnings

Nestle Keeps Strong Pace of Growth with Price Hikes

Friday, 22 Oct 2010 12:37 PM

Nestle, the world's biggest food group, beat forecasts with a 5.7 percent rise in nine-month underlying sales thanks to strong demand in emerging markets, price rises and a thriving Nespresso coffee business.

The Swiss group said on Friday it pushed up prices at its largely emerging markets dairy business to offset higher milk costs, while its waters unit gained from good summer weather and baby food saw strong growth in Russia, Brazil and China.

This enabled the maker of KitKat chocolate bars and Maggi soups to confirm its 2010 sales growth and margin outlook for 2010 despite worries about higher commodity prices and the impact of European austerity plans on consumption levels.

"These were strong results, broad based and across all categories," Chief Executive Paul Bulcke told a results conference in New York, adding that the group's first half growth momentum had continued unabated in the third quarter.

The group added that it would only give a 2011 outlook at its annual results in February.

French rival and another big milk user Danone warned on Thursday that economic upheaval would continue to hit consumption in Europe, but still showed a forecast-beating rise in third-quarter sales.

At Nestle, relatively weak growth in Europe was compensated by good performances elsewhere at its Perrier and Pure Life waters unit, its Gerber baby-food nutrition business and at its fast-growing Nespresso premium coffee capsules.

Nestle shares close down 0.8 percent at 52.65 Swiss francs compared to a 0.5 percent drop in the STOXX European food and beverage index, with analysts saying the dip reflected Nestle highlighting tough comparisons in the fourth quarter.

"Nestle has maintained excellent third-quarter growth despite tough comparisons. We are particularly pleased by the performance in water, nutrition and in zone Asia, Oceania and Africa," said analyst Warren Ackerman at Evolution Securities.

The Vevey-based group said higher prices contributed 1.5 percentage points to underlying sales growth as it looked to pass on higher costs for commodities such as milk, coffee, cocoa and grains to consumers.

"The pricing environment varies from country to country, of course, but overall it continues to be tough," Roddy Child-Villiers, head of investor relations, said at a conference call, also confirming guidance of 2 percent to 3 percent raw material price inflation for 2010.

CURRENCY WEIGHS

The underlying sales growth for food and beverages in the first nine months of 5.7 percent was above the 5.4 percent forecast in a poll of analysts compiled by Nestle, and in line with the 5.7 percent reported for the first half of 2010.

Overall sales at the maker of Nescafe coffee and Haagen Dazs ice creams rose 4.5 percent to 77 billion Swiss francs in the first nine months, in line with forecasts in a Reuters poll as the strong Swiss franc and weak dollar took their toll.

Food and beverages now account for virtually all of the group's revenue after it completed the sale of its remaining 52 percent stake in eye-care group Alcon Inc to Novartis AG on Aug. 25 for $28.3 billion.

Nestle shares have been trading at 15.2 times estimated 2011 earnings, at a slight premium to Danone and Anglo-Dutch Unilever. Unilever is due to post results on Nov. 4.

© 2017 Thomson/Reuters. All rights reserved.

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Nestle, the world's biggest food group, beat forecasts with a 5.7 percent rise in nine-month underlying sales thanks to strong demand in emerging markets, price rises and a thriving Nespresso coffee business. The Swiss group said on Friday it pushed up prices at its...
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