Bloomberg News

Nestle Forecasts 2012 Earnings Gain as Sales Beat Estimates

February 21, 2012

(Updates with closing share price in fifth paragraph.)

Feb. 16 (Bloomberg) -- Nestle SA, the world’s biggest food company, reported 2011 sales growth that beat analysts’ estimates and forecast higher 2012 earnings as it introduces products such as the Nescafe Alegria coffee maker.

Sales rose 7.5 percent excluding acquisitions, disposals and currency shifts, the Vevey, Switzerland-based company said today in a statement. That beat the 7 percent average estimate of 12 analysts surveyed by Bloomberg. Nestle forecast higher underlying earnings per share at constant currencies in 2012.

Nestle has developed Maggi Juicy Roasting cooking aids and Dreyer’s smoothies to counter weakening consumer sentiment in North America and Europe. The company has also passed on higher raw-material costs to consumers in the form of increased prices. Sales from its Americas unit gained 6.2 percent, helped by the introduction of products such as DiGiorno Pizza Combos.

“The figures look better than expected and there seems to be an acceleration in the Americas in the fourth quarter, which is a positive and indicative of improved consumer mood,” said Jon Cox, head of Swiss research at Kepler Capital Markets in Zurich.

Nestle rose 2.1 percent to 55.60 Swiss francs, the highest closing price since Dec. 29, 2010.

Strong Franc

Net income from continuing operations rose to 9.49 billion francs ($10.2 billion) from 8.78 billion francs a year earlier, tempered by the strength of the Swiss currency, which reduced the value of sales generated in other countries.

“There are some bright spots in the U.S., but generally the North American economic environment will remain subdued,” Chief Financial Officer Jim Singh said on a webcast. There will be a “slow, but gradual improvement,” he said. “We have to accept that Europe will be in a period of lower growth, lower inflation.”

Nestle said it expects so-called organic sales growth in 2012 to meet its target of 5 percent to 6 percent after beating that range in 2010 and 2011. The maker of KitKat chocolate bars also aims to widen its so-called trading operating profit margin at constant currencies.

Nestle had a “phenomenal” fourth quarter, Jean-Philippe Bertschy, an analyst at Bank Vontobel, wrote in a note to investors. The outlook is “relatively upbeat considering the challenging environment.”

Raw-material inflation will probably be less than 5 percent this year, Singh said.

Danone, Pfizer

Danone, the world’s largest yogurt maker, yesterday said like-for-like sales will rise 5 percent to 7 percent in 2012 and said European consumer sentiment won’t improve.

Nestle and Danone made first-round bids for Pfizer Inc.’s baby-formula unit, which may fetch as much as $10.5 billion, people with knowledge of the process said last month. Singh today declined to comment on Pfizer.

The Swiss company studies all possible acquisitions that make strategic sense, including larger ones, the CFO said. Nestle’s debt guidance assumes some “bolt-on” acquisitions, he also said. The Purina pet-food maker expects net debt of about 15 billion francs to 18 billion francs by 2013, compared with 14.3 billion francs at the end of 2011.

The food company last week unveiled the Alegria coffee machine, which is designed for small businesses such as hairdressers and florists. Nestle has developed a range of beverage systems including the Viaggi super-premium coffeemaker and Special.T tea machines. Sales of Nespresso rose more than 20 percent in 2011, making it Nestle’s fastest-growing major brand.

Pure Life

Organic sales at Nestle Waters increased 5.2 percent, helped by growth in emerging markets and North America. The company’s Pure Life bottled-water brand is the world’s largest. Nestle said it expects pricing pressure from competitors to continue.

Nestle expects capital expenditure in 2012 to be 5 percent to 6 percent of sales.

The weakness of currencies against the franc stripped 13 percentage points off sales growth, Nestle said. The dollar was on average 15 percent lower against the franc last year, while the euro was down 11 percent.

Nestle proposed a dividend of 1.95 francs a share, 5.4 percent more than the previous year. The company doesn’t plan any buybacks in the short-term as its priority is investing cash in its businesses and paying dividends, Singh said.

--Editors: Thomas Mulier, Paul Jarvis

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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