VEVEY, Switzerland (Reuters) - Nestle NESN.VX reported strong underlying 2008 sales growth of 8.3 percent and, unlike some rivals, said it was cautiously upbeat for 2009 and would push cheaper products to cope with the downturn.
The world’s biggest food maker by revenue said economic trouble would continue to hit consumer demand in 2009 but it forecast organic sales growth “at least approaching 5 percent” compared with a long-term target of 5 percent to 6 percent underlying growth, and reiterated its goal of profit margin improvement at constant currencies.
“We do not believe that 2009 will be all doom and gloom as some would make us think,” Chief Executive Paul Bulcke told a news conference, adding that Nestle expected to sell more ready meals like its “Lean Cuisine” as consumers cut back on dining out.
Shares in the Vevey-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soup were up 4.9 percent at 38.82 Swiss francs at 0958 GMT (4:58 a.m. EST), compared with a 2.7 percent stronger Dow Jones European food and beverage index .SX3P.
Nestle shares had been underperforming in recent months on concerns about how the company will fare in 2009.
“Overall a strong set of figures and probably better than expected after weakness among peers,” said Kepler Capital Markets analyst Jon Cox. “The guidance is solid enough.”
Big rivals like Procter & Gamble (PG.N) and Kraft KFT.N have recently cut their targets due to the consumer slowdown and retailer destocking, while Unilever (ULVR.L)UNc.AS said it could not give a specific 2009 outlook.
Nestle said it was committed to completing a three-year, 25 billion franc share buyback program launched in 2007, but would only buy back about 4 billion francs in 2009, instead upping its dividend by 14.8 percent to 1.40 francs per share.
Nestle reported that 2008 net profit rose 69 percent to 18 billion francs ($15.35 billion), compared with average analyst forecasts for 20 billion francs, helped by a 9.2 billion gain from the sale of part of U.S. eyecare firm Alcon ACL.N.
Chief Financial Officer Jim Singh said Nestle had no plans to renegotiate its deal agreed in April last year to sell the rest of its stake in Alcon to Swiss drug firm Novartis NOVN.VX despite plummeting stock markets.
“We believe the underlying value of Alcon is sound and therefore there is no intention to renegotiate,” Singh said.
Nestle said 2008 sales rose 2.2 percent to 109.9 billion francs, versus analysts forecasts for 110.5 billion, as a strong Swiss currency negated volume and price growth.
Analysts had expected closely-watched organic or underlying sales growth of 8.2 percent. They forecast organic sales growth of 4.5 percent in 2009.
CFO Singh said Nestle’s “popularly positioned product” strategy of offering cheaper goods to lower income consumers was helping during the downturn and would be further pushed in Europe as well as developing countries.
“We offer consumers the opportunity to trade up and trade down without trading out of Nestle products,” he said.
However, Singh said that as consumers focus on essentials, 2009 would be a tough year for its bottled water business and its nutrition unit, which produces diet products, and sports drinks and bars.
However, CEO Bulcke said Nestle’s premium and luxury products were still doing well, noting that sales of its Nespresso coffee soared to more than 2 billion francs in 2008, while Russian sales of its Movenpick ice cream rose 40 percent.
After big falls in commodity prices last year, CFO Singh said Nestle — a major consumer of coffee, cocoa and milk — had seen an uptick in raw materials prices in January and expected an overall increase of about 2 percent for 2009.
Nestle shares have underperformed of late due to concern it might use proceeds from the Alcon sale to launch an expensive takeover of L’Oreal (OREP.PA), the world’s biggest cosmetics firm in which Nestle has a 29 percent stake.
Nestle said on Thursday it would honor its agreement with L’Oreal that it would not increase its stake until six months after the death of Liliane Bettencourt, the 86-year-old billionaire daughter of the group’s founder who owns 30 percent.
CFO Singh said on Thursday Nestle was “not in a hurry” to do anything and said investors should not expect any news when a shareholder lock-up expires on April 29.
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($1=1.173 Swiss Franc)
Additional reporting by Laura MacInnis; editing by David Cowell and Karen Foster