Nestle has emerged as the winner in the bid to buy Pfizer's infant nutrition business, it was announced this morning (23 April).

The Swiss food giant has agreed to pay almost US$11.9bn for Pfizer's baby food unit, which sells brands like S-26 Gold and SMA. The world's largest food manufacturer, which already owns baby food brands including Gerber and NaturNes, has expanded its business in a sector that, in terms of growth and profitability, is one of the industry's most attractive.

Announcing the deal, Nestle revealed details on the recent financial performance of the business and set out forecasts for the unit. Pfizer saw sales from its infant formula arm reach $2.2bn in 2011, leading to EBITDA of $500m and an EBITDA margin of 25%. Nestle forecast the business's sales will increase by over 9% this year and estimates the unit's EBITDA will jump 20%.

Nestle also emphasised the presence Pfizer's baby food arm has in developing markets. CEO Paul Bulcke said 85% of Pfizer's $2.2bn sales are in emerging markets, which would have been a key factor in Nestle deciding to pay a hefty price tag for the unit. The $11.85bn Nestle will pay for the business, equates to 23.7x the unit's 2011 EBITDA - a multiple higher than most analysts were expecting, which could explain why, for all the company's optimism about the deal, its shares fell this morning.

Talking to just-food last week, as speculation swirled that Nestle had beaten off reported rival interest from Danone, Pfizer, which insisted no decision had been made, said it was looking for maximum returns for its baby food business. To some Nestle shareholders, it would seem that the US pharmaceuticals group has succeeded - and then some. However, the growth prospects for baby food, particularly in emerging markets, make this an attractive deal for Nestle.

The Kit Kat and Nescafe maker was also in the news on Friday as it reported its sales figures for the first three months of 2012. Group revenue increased 5.6% and underlying sales, excluding price increases, M&A and currency movements (what Nestle calls "real internal growth" and which in effect measures sales volumes) were up 2.8%.

However, it was Nestle's performance in the Americas - and particularly North America - that caught the eye. Nestle's sales fell 0.4% in the Americas when using its real internal growth metric and the company pointed to "weak consumer sentiment" in North America. Nestle said volumes in some categories in North America fell during the first quarter of 2012.

The comments echoed those made by the likes of US companies General Mills and ConAgra Foods earlier this year, which said months of price increases in 2011 hit sales in the latter part of the year and the early months of 2012. The pressure does seem to have continued well into the first quarter; data issued by Sanford Bernstein has said volumes in measured channels in the four weeks to 17 March fell 6%.

And, today, we have had further evidence of how tough trading is in the US. Kellogg has issued a surprise profit warning, citing, among other factors, "initial weak volume growth" in some US categories.

We should, over the coming days, get more detail on the latest volume trends in the US food sector as major manufacturers report their first-quarter sales numbers. Unilever, PepsiCo and Kellogg are among those due to report this week and, with some analysts believing volumes will continue to be weak this year, investors will be keen to hear how companies will respond. Nestle is hoping the launch of more products will add some "dynamism" to the market. It may not be as simple as that.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
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