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Nestle H1 sales disappoint, trims 2009 outlook

Nestle H1 sales disappoint, trims 2009 outlook

Zurich: Nestle, the world’s biggest food group, missed forecasts with organic sales growth of 3.5% in the first half, and pared its full-year outlook, saying only it sees faster growth in the second half.

Analysts polled by Reuters had on average forecast that organic sales growth, which strips out currency effects and acquisitions, would be 3.9% after 3.8% in the first quarter.

Nestle said it “expects volume-driven organic growth to accelerate in the second half" compared with a previous target for 2009 organic sales growth “at least approaching 5%."

It had already said in June that it expected performance to be weighted towards the second half, when it saw growth coming less from pricing and more from volume.

Nestle shares, which have underperformed the DJ Stoxx European food and beverage index this year, were indicated to open down 1.9%, according to pre-market data from Clariden Leu.

“The improvement in margins is positive, but whether that is enough to console investors given the rather disappointing growth is unknown. In sum, therefore, rather disappointing," said a Zurich-based trader.

Nestle reported a 30 basis point improvement in its margin on earnings before interest and tax (EBIT) and reiterated it sees an improvement in the EBIT margin at constant currencies for 2009.

“The group remains committed to its strategic direction focused on sustainable, long-term profitable growth and is well placed to capture opportunities as economic conditions improve," chief executive Paul Bulcke said in a statement.

Nestle’s bottled water division, which has been hit by environmental concerns and the effects of recession, continued to be the weakest, recording a 3.7% fall in volume, which Nestle said was due particularly to western Europe and North America.

Its nutrition business saw volume fall 2.4%, but it said all divisions improved from the first quarter, with infant nutrition doing better in Europe and the United States.

Its fastest growing brand, Nespresso, the premium portioned coffee, saw organic growth over 25%, it said.

Strong Swiss franc

Net profit fell 2% to 5.1 billion francs, compared with an average forecast of 4.9 billion francs, on sales down 1.5% at 52.3 billion francs, against an average forecast of 52.7 billion.

The maker of Nescafe coffee, KitKat chocolate bars and Maggi soup took a 4.3% hit on sales from currency effects, largely due to the strong Swiss franc, which had also hit sales in the first quarter.

Rival Unilever Plc/NV, the world’s third-biggest food and consumer goods group, beat forecasts last week with a 4.1% rise in second-quarter sales, while volume growth of 2% boosted its shares to a seven-month high.

French food group Danone also reported forecast-beating results, with price cuts helping volumes rise 2.7% in the second quarter.

Nestle shares are trading at about 14 times 2010 earnings, compared with 13.9 times for Danone and 13.2 for Unilever.

Nestle said 0.5% of its organic growth came from volume, against 0.7% expected by analysts, while the rest came from price rises, compared with the 3.2% predicted by analysts.

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