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Nestle cautions on margins as it raises sales goal

Nestle cautions on margins as it raises sales goal
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First Published: Thu, Oct 20 2011. 02 54 PM IST

Nestle SA’s new production unit in Konolfingen, Switzerland. Photo: Bloomberg.
Nestle SA’s new production unit in Konolfingen, Switzerland. Photo: Bloomberg.
Updated: Thu, Oct 20 2011. 02 54 PM IST
Paris: The world’s biggest food group Nestle said weakening consumer sentiment in developed markets would make it harder to improve margins as it raised its sales growth outlook for 2011 after beating forecasts for the first nine months.
Nestle SA’s new production unit in Konolfingen, Switzerland. Photo: Bloomberg.
The Swiss company said price hikes and strong demand in emerging markets allowed it, like other big European food groups, to make up for weakening consumer sentiment in the mature markets of Western Europe and the United States.
The maker of KitKat chocolate bars and Nespresso coffee capsules softened its optimism about margins, however, saying it was looking for an increase this year following a more confident tone at its half-year results in August.
“For the year as a whole, in spite of input cost pressures, we expect to slightly over-perform against our long-term organic growth range of 5-6% and continue to strive for a margin improvement in constant currencies,” Chief Executive Paul Bulcke said in a statement on Thursday.
Underlying sales at the owner of brands such as Perrier, Maggi, Carnation and Nescafe rose 7.3%, down from 7.5% in the first half, but beating forecasts for a 7.1% rise in a Reuters poll.
“Very solid set of figures with a clear beat of consensus at the organic growth and raises its guidance,” Kepler Capital Markets analyst Jon Cox said. He noted Nestle had tweaked its margin outlook comment to say it is “striving” for an increase in constant currencies. “That may raise some eyebrows.”
Asked about this change in wording, Nestle investor relations head Roddy Child-Villiers said: “Consumer sentiment has turned down in Europe and the United States. So if we say ‘striving´, we’re just taking into account the tougher environment.”
“We’re still committed to the Nestle model and working to achieve a margin improvement,” he told a conference call.
Nestle shares fell 1% to 51.05 francs by 01:35 pm, in line with the STOXX 600 Europe food & beverages index.
Gloomy Consumers
Nestle achieved volume growth of 4.1% and raised prices by 3.2% between January and September. It said in a presentation the underlying sales growth contribution was more weighted to pricing as the year progressed.
Child-Villiers confirmed this year’s input costs would increase at the upper end of a 2.5-3 billion francs range.
Emerging markets remained the growth driver with 13.1% underlying sales growth and Child-Villiers said there was no sign of a slowdown in these markets, including China.
Nestle spoke, however, of a challenging environment in developed markets which only grew 4.0%.
Vontobel’s Jean-Philippe Bertschy noted a slowdown in Europe in the third quarter to 3.4% underlying sales growth from 7.7% in the second quarter.
“Water was particularly hit due to unfavourable weather in Europe with a flat volume growth in the third quarter.”
Overall sales in Swiss francs fell 15.1%, severely impacted by the franc’s strength versus other currencies, to 60.9 billion Swiss francs, short of the 61.9 billion franc forecast in the Reuters poll.
Nestle shares, which have lost about 6% so far this year, compared with a 3.6% drop in the sector index, trade at about 15.9 times estimated 2012 earnings, at a premium to Danone on 14.4 and Unilever on 14.1.
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First Published: Thu, Oct 20 2011. 02 54 PM IST