ZURICH (Reuters) - The world’s biggest food group Nestle NESN.VX raised its full-year outlook on Wednesday after strong demand for its Maggi and Nescafe brands in emerging markets helped it post a forecast-beating 7.5 percent rise in underlying first-half sales.
Sales grew in all regions, even in crisis-shaken Europe and North America, and the group managed to keep margins and net profits largely stable for its continuing operations despite soaring raw material costs and a record-high Swiss franc.
The Vevey-based maker of KitKat chocolate bars and Nespresso portioned coffee said it expected full-year underlying sales growth at the top end of its long-term target range of 5-6 percent along with higher margins in constant currencies.
“Our guidance is cautious due to the environment we’re operating in,” Nestle Chief Financial Officer James Singh told analysts at a conference call, adding the group’s input costs would rise about 3 billion Swiss francs this year.
Chief Executive Paul Bulcke said Nestle made good progress in a period characterized by political and economic instability, natural disasters, rising raw material prices and a strong Swiss franc after the 7.5 percent half-year underlying sales rise beat a consensus forecast for a 6.5 percent increase.
These factors as well as subdued consumer demand in mature markets will make the rest of 2011 equally challenging, Nestle said, but momentum was strong, particularly in emerging markets, and pricing should help more in the second half.
Nestle decided not to launch a new share buyback program, which had been expected by many analysts, partly due to the tough economic environment and also to keep cash available for possible bolt-on acquisitions.
“Investing in our business, both organically and through bolt-on buys, and increasing our dividend is our priority,” CFO Singh said, adding the company was looking for buys across all regions.
Nestle shares were 0.8 percent higher at 47.08 francs by 6:55 a.m. EDT, in line with the STOXX Europe 600 Food & Beverage index .SX3P. They had lost 15 percent so far this year, underperforming a 5 percent drop in the sector index.
Vontobel analyst Jean-Philippe Bertschy said the absence of a new share buyback would stoke rumors of Nestle being interested in Pfizer’s (PFE.N) nutrition business which is up for sale. A Nestle spokeswoman declined to comment.
Like peers Kraft Foods KFT.N and Unilever (ULVR.L), Nestle accelerated price increases in the second quarter to offset soaring costs for commodities such as coffee, cocoa and sugar, which hit 30-year highs earlier this year.
On top of that, Nestle also has to deal with a huge rise in its reporting currency, the safe-haven Swiss franc, which prompted new measures from the Swiss National Bank on Wednesday.
The currency impact chopped 13.8 percent off sales that fell to 41 billion francs ($55.4 billion) in the first half, in line with forecasts in a Reuters poll. [ID:nL6E7J80FM]
Singh said this was mainly a translation effect and hardly affected the strong underlying performance.
Nestle net profit fell 13.7 percent to 4.7 billion francs compared with a year ago, but was flat excluding the impact of the sale of its Alcon eyecare business. The group’s operating profit margin rose 0.2 points to 15.1 percent.
“Headlines are good, demonstrating the resilience and quality of the business. The growth is broad-based and margin growth is impressive compared to the large cap food peer group which saw margin declines at H1,” Citi analyst Sara Welford said.
($1=0.740 Swiss Francs)
Reporting by Silke Koltrowitz; Editing by Mike Nesbit and David Jones