•  Sales miss consensus expectations
  •  Operating margin up 20 bps
  •  Operating profit up 6.8%
Nestle upbeat on margins but sales disappoint

Nestle upbeat on margins but sales disappoint

Nestle has booked lower-than-expected first-half sales growth as pricing came under pressure in a number of markets and the company faced continued challenges in Europe.

The Swiss food giant said this morning (8 August) half-year revenue rose 5.2% to CHF45.2bn (US$49bn), while organic sales gained 4.1%. Consensus estimates had predicted organic growth of 4.5%.

Pricing contributed 1.4% to the top line in the half, meaning price increases slowed in the second quarter. Pricing had contributed 2% to sales in the first three months of the year.

"Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today's more value conscious consumers," CEO Paul Bulcke conceded.

Revenue gains were driven by 5% organic growth in the Americas, with double-digit gains in Latin America. Nestle saw a 5% increase in organic revenue from its Asia, Oceania and Africa division. It said China, Indonesia, Malaysia and much of Africa "continued to grow well".

In Europe, the group continued to be squeezed by the challenging macro environment and reported organic sales growth of 0.5%. Organic sales had gained 1.5% in the first quarter in the region, suggesting a slowdown as the year progressed.

Sales at the company's nutrition business rose 6.5% on an organic basis, with strength in infant nutrition offset ongoing weakness in weight management.

Nestle remained upbeat on its margin performance, with trading operating profit up 6.8% to CHF6.8bn on a 20 basis point improvement in operating margins. The company also increased its investment in marketing by 60 bps in the period. Net profit was up 3.7% to CHF 5.1bn.

Looking to the full year, Nestle dropped its organic growth guidance slightly from a range of 5-6%, the so-called 'Nestle model', to "around 5%" organic growth. The company reiterated its aim to improve margins and underlying EPS on a constant currency basis.

Nestle shares were off 1.5% in morning trade today, dropping to CHF63.20.

Click here for coverage of Nestle's media call to discuss the company's the first-half results.

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First Half 2013: improving RIG momentum drives profitable growth

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Sales up 5.3% to CHF 45.2 billion, 4.1% organic growth

Real internal growth up to 2.7% for the first half: all three geographies contributed

Trading operating profit +6.8% to CHF 6.8 billion, margin +20 basis points to 15.1% 

Marketing spend +60 basis points; consumer facing spend +15% in constant currencies

Earnings per share +3.4%; +7.2% underlying in constant currencies

Operating cash flow of CHF 5 billion

2013 outlook: around 5% organic growth with an improvement in margins and underlying earnings per share in constant currencies.

Paul Bulcke, Nestlé CEO: “In the first half we delivered a balanced performance, both top and bottom line, in an environment of lower growth and lower input costs. Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today’s more value conscious consumers. This, combined with substantially increased investment behind our brands, delivered stronger volume growth momentum, whilst at the same time we were able to improve the operating margin. We expect this growth momentum to continue in the second half, allowing us for the full year to deliver, in line with our commitments, around 5% organic growth with an improvement in margins and underlying earnings per share in constant currencies.”

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Original source: Nestle