Nestle trims outlook as sales disappoint

Nestle, 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 per cent, 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
per cent after 3.8 per cent 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 per
cent,' 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 per cent, according to a recent Reuters poll of analysts—were
a good interpretation of Nestle's guidance. After just 0.5 per
cent 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 per cent' target. Nestle shares
were down 3.2 per cent at 42.70 Swiss francs at 5:47 a.m. EDT,
dragging on the DJ Stoxx European food and beverage index, which was
down 1.3 per cent. '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, the world's
third-biggest food and consumer goods group, and French food group
Danone beat forecasts. Unilever reported volume growth of 2 per cent,
and Danone said price cuts helped volumes rise 2.7 per cent.
Nestle shares are trading at about 14 times 2010 earnings, about the
same as Danone and at a premium to Unilever's 13.2. While they were
disappointed by sales, analysts welcomed Nestle's 30 basis point
improvement in its margin on earnings before interest and tax to 14.1
per cent 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.