Nestle upbeat despite consumer gloom, raises outlook

By Katie Reid

ZURICH (Reuters) - The world's largest food company Nestle (NESN.VX) posted a top-of-the-range 6-percent rise in first-half profit on Thursday as it gave a slightly more upbeat forecast for 2008 and accelerated its share buyback programme.

The Swiss-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soups is battling higher commodity costs like its rivals, and has pushed up prices to offset these effects but it is seeing some slowdown in volume growth in its second quarter.

Net profit rose to 5.2 billion Swiss francs ($4.95 billion) in the first six months on 2008, slightly ahead of average analyst expectations for 5.05 billion and at the top of a 5.05 to 5.21 billion range.

Underlying sales, which strip out currency effects and acquisitions, rose 8.9 percent, in line with forecasts.

But pricing accounted for a higher-than-expected 5.4 percentage points and volume was 3.5 percent -- below the first-quarter's 4.5 percent.

Nestle shares fell more than 2 percent on concern over the volume growth and as the strong Swiss franc weighed on sales.

The shares were down 1 percent at 46.66 francs at 1310 GMT, slightly underperforming the DJ Stoxx European food and beverage index .SX3P.

"With Q2 RIG (volume growth) below expectations and the margin quality open to debate, this may weigh on the shares," said industry analyst Jeff Stent at brokers Citi in London.

Julian Hardwick, an analyst at RBS, said: "Marketing spending was down 120 basis points -- a bigger decline than Unilever's (ULVR.L)(UNc.AS) 70 basis points fall which sent its shares down 10 percent, and this may well be taken negatively for Nestle as some investors may take the view that marketing is being used to make the margin numbers."

But independent analyst James Amoroso said this was the right response to a "perfect storm of input costs, negative forex and reduced 'feel good' consumer factors".

Chief Financial Officer James Singh said in a conference call that Nestle was fully supporting its brands to make sure they remained competitive.

"With respect to what we call advertising and consumer promotion, our activities are increasing but we are finding better ways, more creative ways to get better value for money," Singh said.

RESILIENT IN TOUGH TIMES

The maker of Buitoni pasta, Nespresso coffee and Friskies cat food gave a slightly more upbeat forecast, expecting organic growth in 2008 "at least" at the 2007 level of 7.4 percent.

It previously said it would "approach" that figure.