Nestle Posts Sales Gains, But Americas Volume Dips

CPG Giant Says Consumer-Facing Marketing Is Up and Being Used More Efficiently

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Nestle on Thursday reported first-half sales growth that beat analysts' estimates, as the world's biggest food company outpaced rivals in Europe and raised prices in the U.S.

Sales rose 6.6%, excluding acquisitions, divestments and currency shifts, said the Swiss company today in an e-mailed statement. The average of 10 analysts' estimates was for a 6.3% increase. The shares rose as much as a record 3.4%.

Higher prices led to sales gains of 5.7% in the Americas and 2.4% in Europe, as volume in the regions was little changed.

Nestle said U.S. revenue accelerated in the second quarter as it added products such as DiGiorno Pizza Dipping Strips, allowing it to beat sales growth of Danone, one of its main European competitors. Developed markets will remain difficult for the rest of the year, the company also said.

"Across the piste, it's a pretty solid performance," said Julian Lakin, head of research at Mirabaud in London. "Europe is tough and not getting any easier, but Nestle is doing a bit better there than expected, and in North America they're getting some forward momentum."

In a statement, the company said marketing and administration costs were down 0.2 percentage points, but that "consumer-facing marketing spend is up in constant currencies and is being used more efficiently and effectively, increasing the return on investment in our brands and support for launch activities globally."

The stock traded 3.3% higher, at 61.60 Swiss francs, as of 12:37 p.m. in Zurich. The shares have gained 32% in the past year as Unilever advanced 27% and Danone 7.3%.

Goods for lower-income consumers -- which Nestle calls popularly positioned products -- and premium items helped drive the growth in Europe during the first half, Chief Financial Officer Wan Ling Martello said on a conference call. "To be able to get the kinds of numbers in developed markets where it's very challenged from a macro perspective, innovation is going to continue to be key," said Ms. Martello, who replaced Jim Singh in April.

Net income gained 8.9% to 5.1 billion Swiss francs ($5.3 billion), Nestle said. Total sales rose 7.5% to 44.1 billion francs. Nestle's organic revenue growth was the slowest since the second half of 2010, according to Nomura estimates. The company doesn't publish second-half growth rates.

Nestle reiterated its guidance for the year, saying it expects organic sales growth to meet its target of 5% to 6%. The KitKat maker also has a goal to widen its profit margin in constant currencies and boost earnings per share on the same basis. Unilever, the world's second-biggest consumer goods company, said July 26 that underlying sales, which exclude acquisitions, disposals and currency fluctuations, gained 7% during the first half. Danone, the world's biggest yogurt-maker, said the following day that revenue increased 5.9% during the same period. Procter & Gamble said Aug. 3 that fourth-quarter organic sales growth was 3%.

Nestle's volume rose 2.9%, in line with estimates, while price increases contributed 3.7% to sales growth, beating estimates of 3.5%. The food company has forecast raw-material price inflation at a "low to mid single-digit" pace in 2012. Nestle's volume growth in its Americas unit dipped 0.1% after a 0.4% decline during the first quarter. Volume growth in Europe was 0.1% after a 0.2% gain during the first three months of the year.

The trading operating margin narrowed 0.1% point to 15% from the year-earlier period. The company said that 's in line with its expectations that this year's margin improvement would be weighted to the second half. Nestle has no plans for a share buyback at present, though the company remains open to the possibility, Ms. Martello said. While Nestle doesn't plan to make any large acquisitions, it will consider bolt-on acquisitions, she added.

Organic sales at Nestle's nutrition unit, which makes Gerber baby food and Jenny Craig weight-loss products, increased 5.7% in the first half. Nestle in April agreed to buy Pfizer's infant-nutrition unit for $11.9 billion. The acquisition is expected to close in early 2013, according to Ms. Martello.

~Bloomberg News with additional reporting by Ad Age ~

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