August 9, 2012 / 5:36 AM / 6 years ago

Nestle sees easing raw material prices helping H2

ZURICH (Reuters) - Nestle NESN.VX, the world’s biggest food group, expects raw material prices to ease in the second half of the year, helping it meet its outlook despite continued tough markets after it reported forecast-beating first half results.

The headquarters of food giant Nestle is pictured in Vevey August 8, 2012. The company is due to announce their half-year results on August 9. REUTERS/Denis Balibouse

Nestle said first half underlying sales grew 6.6 percent, down from 7.2 percent in the first quarter but beating average analyst forecasts for 6.3 percent.

The growth was helped by strong demand from emerging markets and price increases, as the company managed to pass on soaring input costs to consumers.

The Vevey-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soup, which is a big consumer of raw materials like coffee, cocoa and milk, said input cost pressure resulted in an increase of 50 basis points in the cost of goods sold.

But it said it expected commodity prices to ease in the second half, helping it meet its long-term target for underlying sales growth of 5-6 percent this year despite a continued tough trading environment, especially in developed markets.

First-half sales grew 12.9 percent in emerging markets, compared with just 2.6 percent in developed markets, with volume growth in Europe practically flat although the company still saw some expansion in the continent’s troubled southern nations.

Strong emerging markets also helped rival consumer goods giant Unilever (ULVR.L) (UNc.AS) avoid the recent profit warnings by their French and U.S. peers Danone (DANO.PA) and Procter & Gamble (PG.N), although it did warn of tougher times ahead due to difficult economies and volatile input costs.

Nestle shares were indicated up 0.9 percent according to pre-market indications from bank Julius Baer. The stock has risen 10.5 percent this year compared with a 17 percent increase for the European food and beverage index .SX3P.

    “Organic growth is better than expected, volume growth surprisingly accelerated in Q2, surprising against a backdrop of Europe crisis,” said ZKB analyst Patrik Schwendimann.

    Nestle’s net profit rose 8.9 percent to 5.1 billion Swiss francs ($5.25 billion) on sales of 44.1 billion francs, up 7.5 percent year-on-year, with 3.7 percentage points of the rise in underlying sales coming from price increases.

    Analysts surveyed by Reuters had forecast on average a net profit of 4.9 billion francs and sales of 43.8 billion francs.

    Nespresso, Nestle’s fastest-growing big brand, again posted high double-digit growth, despite the tough economic and competitive environment.

    Nestle also announced that changes to accounting of its pension liabilities would hit net profit by about 360 million francs from 2013 and increase financing costs by 250 million although it would have no impact on underlying performance. ($1 = 0.9721 Swiss francs)

    Reporting by Emma Thomasson, additional reporting by Katharina Bart; Editing by David Cowell

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