Nestle’s sweet news for investors
Nestle, the world’s biggest food maker, reported a higher than expected 5.8 percent rise in underlying nine-month sales Thursday and reaffirmed its year targets, as it managed to pass on higher costs to customers.
The maker of Nescafe coffee and Purina pet food said it was confident of achieving its year target of between 5 and 6 percent organic sales growth — its own sales benchmark that strips out currency and acquisitions — and an improvement in constant currency margins.
Nestle raised prices by 2 percent in the first nine months of 2005, helping it offset the higher prices of raw materials and oil, which has made packaging and transport more expensive.
The group reported nine-month overall sales rose 4.8 percent to 67.7 billion Swiss francs ($52.12 billion) from 64.6 billion a year ago. Fifteen analysts polled by Reuters had on average expected Nestle to report sales of 66.9 billion francs, with forecasts for organic growth averaging 5.2 percent.
“The sales growth looks good and is broad-based. Nestle is managing to offset extra cost rises by increasing prices, cutting costs while benefiting from improved margins at Alcon,” said analyst Michael Steib at Morgan Stanley.
Nestle stock was indicated up 2.5 percent in the premarket according to data provided by Bank Leu. The shares, which closed at 365.50 francs on Wednesday, are due to start trading again at 0700 GMT.
Its shares have risen by more than a fifth so far this year, as investors welcomed its first-ever share buyback and as shares in U.S. eyecare products maker Alcon and cosmetics group L’Oreal , in which it holds stakes, rose strongly.
“Hats off to Nestle. They really surprised us,” one Zurich-based dealer said.
“Nestle continues to offset rising input costs with cost savings and these are fabulous numbers,” another dealer said.
The Vevey-based group appears to have minimized the effect of rising costs as some of the world’s biggest food companies have warned recently of rising prices for oil, packaging and commodities hurting profits, analysts said.
Earlier this month, Cadbury Schweppes warned it was unlikely to meet its margin goal for 2005, and this week U.S.-based Kraft Foods Inc cut its full year profit outlook closely followed by France’s Danone trimming its profit margin target for 2005.
Anglo-Dutch consumer goods group Unilever reports third-quarter figure on November 3.
Nestle reiterated it would implement another share buyback program, subject to board approval, and that this would likely speed up next year.