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Nestle announces share buyback

Thursday, August 07 08:32:04

Nestle, the world's biggest food group, announced an 8 billion Swiss franc share buyback and stood by its full-year sales forecast on Thursday, after revenue growth in emerging markets picked up in the second quarter.

Its comments came after Anglo-Dutch rival Unilever blamed a slowdown in Asia for second-quarter sales missing forecasts last month, and profits at France's Danone were hit by weak dairy sales in Europe.

Food groups are facing tough conditions as prices in developed markets remain under pressure and demand in emerging markets has also been slowing, but Nestle has been able to soften the blow by pouring marketing funds into its leading brands and by getting rid of underperformers.

The Swiss group also announced an 8 billion franc share buyback, following the sale of an 8 percent stake in L'Oreal earlier this year. This was more than the roughly 5 billion repurchase expected by the market, according to Bank Vontobel analyst Jean-Philippe Bertschy.

The company said it wanted to complete the buyback by the end of 2015.

Net profit at Nestle, whose brands range from KitKat chocolate bars to Nescafe coffee, fell about 10 percent to 4.6 billion francs in the six months to June, short of analysts' average estimate of 5.01 billion francs in a Reuters poll, as the strong Swiss franc and higher input costs took their toll.

Sales growth adjusted for currency swings and acquisitions accelerated to 4.7 percent in the first half, from 4.1 percent in the year-ago period and 4.2 percent in the first quarter, as volumes and pricing both picked up.

In franc terms, sales fell 4.8 percent to 42.98 billion francs.

Nestle shares, which have gained 2.8 percent so far this year, were expected to open up 1.5 percent, according to premarket indications from bank Julius Baer.

Sales growth in emerging markets, which represented 44 percent of group sales, accelerated to 9.7 percent, from 8.2 percent a year ago and 8.5 percent in the first quarter.

That included double-digit growth in Latin America, with good growth in Turkey, Pakistan, Africa and the Philippines offsetting more challenging conditions in China.

Chief Financial Officer Wan Ling Martello said on a conference call that Nestle had increases prices in some emerging markets, partly due to weaker local currencies.

Sales growth in the group's biggest market, the Americas, slowed to 4.9 percent, from 5.0 percent a year ago. Growth in Europe accelerated to 1.4 percent, but prices for Nestle products in the region continued to fall.

The group's trading operating margin was down slightly at 15.0 percent, versus 15.1 percent in the first half of 2013 and 15.2 percent in the full year.

Nestle confirmed its earlier forecast for organic sales growth of around 5 percent this year, with performance weighted to the second half. The company got off to a slow start this year when an unusually cold winter hurt demand in the United States, which accounts for a quarter of company sales.

Nestle is one of several large consumer groups selling underperforming assets to free up resources for its top brands. It is also investing in its new capital-intensive business opportunities in nutrition and health science.

It has sold its Juicy Juice drinks, most of its Jenny Craig diet business and its PowerBar energy bars and said other disposals could follow. It bought injectable wrinkle treatments from Valeant Pharmaceuticals for $1.4 billion to strengthen the skin health business after it agreed to take over the Galderma joint venture with L'Oreal.

Unilever and Procter & Gamble are also unloading weak brands. (Reuters)

For more visit: www.businessworld.ie