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April 20, 2012

On the money: Nestle counts on North America innovation

Nestle said today (20 April) it hopes innovation in North America in the second half of the year will add some "dynamism" to the market after underlying sales in the Americas region fell in the first quarter of 2012.

Nestle said today (20 April) it hopes innovation in North America in the second half of the year will add some “dynamism” to the market after underlying sales in the Americas region fell in the first quarter of 2012.

The world’s largest food manufacturer said “weak consumer sentiment” had continued to hit North America in the first three months of 2012. Growth fell in a number of categories where pricing was higher, including frozen food.

The pressures in North America meant Nestle’s sales in the Americas as a whole, when measured by its real internal growth metric, which excludes pricing, foreign exchange and M&A, fell 0.4%.

Price increases meant Nestle’s sales in the Americas increased by 6.2% on an organic basis to CHF6.5bn.

Speaking after Nestle reported its first-quarter sales, Roddy Child-Villiers, the company’s head of investor relations, told analysts, that pricing hit volumes in some categories in North America.

“Food category volumes are down as people are literally eating less and this seems to affect cash-constrained households being more careful in terms of spend. The frozen category remained in decline in the first quarter … and the pizza segment is also down. Ice cream was flat as a result of pricing in the industry,” he said.

Asked whether Nestle expects its underlying sales in North America to be higher in 2012 year-on-year, Child-Villiers said: “We’ll wait and see”.

However, he did add the company has already launched more products in North America and would roll out further new lines in the second half of the year, which he hopes will make an impact.

“I’m not aware of what competition is up to but we have some interesting stuff coming though in a number of categories. Some stuff is already out there in pet care, pizza and coffee … but there is also stuff coming through which I am not going to talk about until it has happened. Hopefully there is some innovation that will bring some dynamism to the market in the second half of the year.”

Bernstein analyst Andrew Wood said negative real internal growth in the Americas for the first time in many years was “somewhat worrisome for a business that is 30% of Nestle’s sales”.

However, despite Nestle’s struggles in North America, Child-Villiers said the company started the year well, from a growth perspective.

He added: “The business environment is tough in developed markets, with consumer confidence under pressure, and if anything, lower than in 2011. We will be investing in our brands and in innovation and we will be focused on realising the growth opportunities that we know exist in developed markets.

“On the other hand, the emerging markets continue to be dynamic and we are very focused on driving distribution in those markets to increase our exposure from PPP [Nestle’s low-price Popularly Positioned Products] to premium.”

Nestle this morning reported a 5.6% rise in group sales for the first three months of 2012 to CHF21.4bn (US$28.16bn). Sales grew 7.2% on an organic basis. According to Wood, both results were above analysts’ forecasts.

Sales in emerging markets grew 13% compared with 3.1% growth in developed countries.

Nestle shares were down 0.44% to CHF56.95 at 13:55 CET today.

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