Nestle trims 2009 outlook as sales disappoint
ZURICH (Reuters) - Nestle (NESN.VX), the world's biggest food group, pared its full-year outlook on Wednesday after missing forecasts with first-half organic sales growth of 3.5 percent, knocking its shares lower.
Analysts polled by Reuters had on average forecast that organic sales growth, which strips out currency effects and acquisitions, would increase to 3.9 percent after 3.8 percent in the first quarter.
The maker of Nescafe coffee, KitKat chocolate bars and Maggi soup dropped its target for 2009 organic sales growth "at least approaching 5 percent," saying only that it "expects volume-driven organic growth to accelerate in the second half."
Chief Financial Officer Jim Singh said consensus forecasts for the full-year -- with organic growth seen at 4.3 percent, according to a recent Reuters poll of analysts -- were a good interpretation of Nestle's guidance.
After just 0.5 percent of organic growth came from volume in the first half, he said volume should drive growth more than pricing in the second half, adding Nestle had cut prices in the last quarter and did not see any significant price rises ahead.
"We are seeing a recovery from a tough period between November and March. We expect this trend of improvement to continue in the second half," Singh told analysts.
Nestle had already said in June that it expected performance to be weighted toward the second half, but few analysts had expected it to pull back from the "approaching 5 percent" target.
Nestle shares were down 3.2 percent at 42.70 Swiss francs at 5:47 a.m. EDT, dragging on the DJ Stoxx European food and beverage index .SX3P, which was down 1.3 percent.
"Headline is that top line is a bit disappointing, certainly relative to Unilever, but EBIT margin is better, and net income is better," Deutsche Bank analysts wrote in a note.
Second-quarter results at both Unilever Plc/NV (ULVR.L) (UNc.AS), the world's third-biggest food and consumer goods group, and French food group Danone (DANO.PA) beat forecasts. Unilever reported volume growth of 2 percent, and Danone said price cuts helped volumes rise 2.7 percent.
Nestle shares are trading at about 14 times 2010 earnings, about the same as Danone and at a premium to Unilever's 13.2.
PROFITABLITY BETTER
While they were disappointed by sales, analysts welcomed Nestle's 30 basis point improvement in its margin on earnings before interest and tax (EBIT) to 14.1 percent and a forecast-beating net profit of 5.1 billion francs.
Nestle reiterated it expected an improvement in the EBIT margin at constant currencies for the full year.
Sales fell 1.5 percent to 52.3 billion francs, against an average forecast of 52.7 billion, as Nestle took a 4.3 percent hit from currency effects, largely due to the strong Swiss franc, which had also hurt sales in the first quarter. Continued...
