Nestle cautions on margins as it raises sales goal

Reuters

By Silke Koltrowitz

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.

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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 percent 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 percent, down from 7.5 percent in the first half, but beating forecasts for a 7.1 percent 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."

"We're still committed to the Nestle model and working to achieve a margin improvement," he told a conference call.

Nestle shares fell 1 percent to 51.05 francs by 0805 GMT, in line with the STOXX 600 Europe food & beverages index.

GLOOMY CONSUMERS

Nestle achieved volume growth of 4.1 percent and raised prices by 3.2 percent 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 percent 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 percent.

Vontobel's Jean-Philippe Bertschy noted a slowdown in Europe in the third quarter to 3.4 percent underlying sales growth from 7.7 percent in the second quarter.

"Water was particularly hit due to unfavorable weather in Europe with a flat volume growth in the third quarter."

Overall sales in Swiss francs fell 15.1 percent, 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 percent so far this year, compared with a 3.6 percent 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.

($1 = 0.899 Swiss Francs)

(Editing by David Cowell, Hans-Juergen Peters and David Jones)