What the analysts say – The verdict on Nestle's H1
A round-up of analysts' thoughts on Nestle's results
Nestle, the world's largest food manufacturer, today (9 August) reaffirmed its full-year profit guidance after posting an upbeat 8.9% jump in net profit and a 7.5% increase in sales. On the whole, analysts remained equally positive about the results, which they said, remained in-line with expectations.
Alain Oberhuber, consumer goods research analyst, MainFirst Schweiz
"We believe that the market underestimated the positive mix effect of the higher growth of the emerging markets, which have higher operating margins, in contrast to lower growth in lower margin areas in Europe. This effect continued and is one of the reasons why Nestlé confirmed its higher margin guidance for FY 2012.
"North America organic growth continued to be slow but Q2 organic growth slightly improved over Q1. All categories had positive organic growth but some had negative volume growth. The frozen category business was weakest. The pizza category was soft. Nestle took some pricing action in ice cream due to increased pressure from private label. But ice cream organic growth was positive as there was good growth in ice cream super premium and snacks."
Jon Cox, Kepler Capital Markets
"Stripping out Q1, organic sales growth +6.0% (Kepler 5.5%/ consensus 5.4%). Former EBITA -10bp at 15.2% margin (Kepler 15.3%). Operating cash flow CHF5.1bn vs CHF2.1bn amid improvements in operations and working capital. Margin pressure amid +50bp COGS and company reiterates margin improvement will be back loaded for the year. Running down P&L all lines were better than expected for 4% net profit beat. Europe and AOA margins under particular pressure offset by waters where the company pointed to mix and cost management.
"A very solid set of numbers for what is a class act in the space with the cash flow statement particularly pleasing. However, given strong results in sector we believe it might already be in the price. We presume estimates can come up amid more favourable currency tailwinds but believe this is more or less in the price given the stretched multiple.
Andrew Wood, senior research analyst of European Food & HPC, Sanford Bernstein
"The Q2/H1 results were good and broadly in-line with expectations...above on sales, slightly below on margins, slightly above on EPS. As expected, Q2 organic top-line growth (+6.0%) showed some deceleration from Q1 (+7.2%) and from FY 2011 (+7.5%)...but was much more robust than anticipated. And, also as expected, pricing continues to roll over but RIG did not accelerate from Q1, leading to the slowdown...and we expect this to continue to be the case in H2 too.
"All businesses/regions beat expectations...but perhaps most impressive was the growth seen in Europe (+2.5%) in-line with Q1 despite the current economic woes. Zone Americas growth (+5.2%) decelerated from Q1 (+6.2%) and we estimate that all of the growth is coming from Latin America as the US business stays weak. Trading operating margins were down -20bps (-10bps underlying) which is in-line with, or slightly below expectations, but management confirmed that commodities should ease in H2 and we expect a return to margin growth. We saw good progress on cash flow, with significant growth in both operating cash flow and free cash flow...but it should be remembered that the 2011 base is very low given last year's disappointments."
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