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Nestle boosted by emerging markets, price hikes

Nestle boosted by emerging markets, price hikes
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First Published: Fri, Apr 15 2011. 03 53 PM IST
Updated: Fri, Apr 15 2011. 03 53 PM IST
Zurich: Nestle, the world’s largest food group, said strong emerging market growth and price rises helped to drive better than expected first-quarter underlying sales growth despite a sharp rise in commodity costs.
The Swiss-based giant is, along with other food groups, grappling with soaring costs for inputs such as coffee, cocoa, milk, grain and crude oil and is offsetting the impact by passing the cost onto consumers and by cost savings.
Underlying sales for the first three months of 2011, which strip out exchange rates and acquisitions, rose 6.4% beating a 5.7% consensus forecast in a Reuters poll.
The maker of KitKat chocolate bars and Nespresso coffee confirmed its 2011 goals for sales growth of 5-6% and higher margins with an acceleration of margins seen in the second half, Investor Relations head Roddy Child-Villiers said in a conference call after quarterly results on Friday.
Input costs are expected to be at the top of Nestle’s previous guidance for a 8-10% rise in 2011 and pricing should tick up during the year as a measured approach was crucial to protect market share, Child-Villiers said.
“Pricing will be higher in the first half than in the first quarter and is likely to result in a slowdown of real internal growth (sales volume),” he said.
Nestle shares, which lost almost 3% so far this year, rose 1% to 53.75 Swiss francs at 02:20 pm, outperforming a 0.4% higher European sector index.
They had already gained 1.3% on Thursday after French rival Danone confirmed its 2011 goals despite rising commodity costs and tough economic conditions. The shares lag Danone up 2.5% this year, Kraft 4.5% ahead and a largely flat Unilever.
Nestle trade at 14.5 times estimated 2012 earnings, in line with Danone but at a premium to Unilever on around 13 times.
“A very strong set of figures driven by emerging markets but also a solid performance in the developed markets,” said Kepler Capital Market analyst Jon Cox.
Nestle’s overall sales in Swiss francs fell 1.2% to 20.3 billion francs, in line with the forecast in a Reuters poll, as the strong currency, which hit fresh highs against the dollar recently, chopped 9.8% off reported numbers.
“When looking at regional growth highlights, an improvement in Europe is worthy of mention. North America continues on the path of slow recovery while emerging markets are a key driver,” said Bryan Garnier analyst Deborah Aitken.
Emerging markets, which account for nearly 40% of Nestle’s business, saw underlying sales up 12% driven by good growth of Nescafe coffee and Munch chocolate bars and across all regions such as China, South Asia and Africa.
Nestle raised prices for its products -- ranging from Maggi soups to Gerber babyfood -- by 1.5% while analysts in a Reuters poll were looking for a 2.3% hike.
Analysts say higher prices have boosted sales at both Danone and Nestle as consumer habits can be “sticky” and downtrading to cheaper products can take a while until price hikes hit home.
Some expected a new share buyback but Child-Villiers said the decision would be made when the group ends its current 10 billion Swiss franc buyback, probably in mid-2011.
Nestle changed its accounting standards at the start of the year to allow for an easier peer comparison and greater transparency. It published a restated first-quarter 2010 sales figure of 20.5 billion Swiss francs, which no longer includes discounts and promotions, versus 26.3 billion previously.
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First Published: Fri, Apr 15 2011. 03 53 PM IST
More Topics: Nestle | Food | KitKat | Nespresso | Sales |