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February 19, 2015

What the analysts say: Nestle’s solid finish to 2014

Nestle revealed today (19 February) that full-year earnings rose on one-time gains and improved margins. Net sales were down due to the impact of currency exchange but the company booked organic sales growth of 4.5%. The sales performance met consensus expectations but came in below the "Nestle Model" that targets organic growth of 5-6% in the medium term. Shares in the Swiss food giant remained relatively flat this morning, reflecting the market's lukewarm response to Nestle's outlook - with sales expected to grow by "around 5%" in 2015 - and concerns over currency exchange.

Nestle revealed today (19 February) full-year earnings rose on one-time gains and improved margins. Net sales were down due to the impact of currency exchange but the company booked organic sales growth of 4.5%. The sales performance met consensus expectations but came in below the “Nestle Model” that targets organic growth of 5-6% in the medium term. Shares in the Swiss food giant remained relatively flat this morning, reflecting the market’s lukewarm response to Nestle’s outlook – with sales expected to grow by “around 5%” in 2015 – and concerns over currency exchange.

Alain-Sebastian Oberhuber, MainFirst

“The positive is the better margin improvement and secondly the higher net income due to financial gains. Negative is the downward adjusted organic growth rate guidance to around 5% vs. +5-6% in the past. Although dividend was announced as expected, there could have been a higher amount. If we look at the zones and business we see the following positives – Europe and Americas grew stronger, as well as waters, nutrition and pet food. Negative were [the] Asia, Oceania and Africa, beverages, dairy-ice cream, prepared dishes and confectionery [businesses]… At a 2016 estimated EV/EBITDA 2016 [multiple] – excluding L’Oréal – of 12.1x and with lower organic growth expectations, the stock has not yet become attractive.”

Jon Cox, Kepler Cheuvreux

“Nestle reported results that on an underlying basis were more or less in line… organic sales of 4.5% were in line, while the trading operating margin of 15.3% was 6bps above consensus, with a dividend of CHF2.20 (US$2.50) in line. The cash flow statement was also more or less in line… Emerging markets appeared to decelerate further (7.1% vs. 9.1% Q3), while the developed world appeared to improve in the quarter. Overall, its buyback, dividend yield and still defensive status support the stock despite its rich valuation.”

Andrew Wood, Stanford C. Bernstein

“Overall, it was a nice, solid reporting. Q4 organic top-line growth was in-line with consensus expectations, but volume/RIG [Nestle’s underlying sales measure of ‘real internal growth’ was stronger than expected, while pricing was lower. At the regional level, Europe was particularly strong (+2.9%), delivering the best quarterly growth in this region since Q4 2011, which compensated for the Asia, Oceania and Africa zone (-0.1%) which remains a huge headache for Nestle and where ‘adapting our portfolio’ and ‘correcting trade stocks’ should be considered as euphemisms for just bad performance. All other regions performed well… FY 2014 can be considered to be a very solid year for Nestle in a tough environment with 4.5% organic growth (well ahead of many peers), +10bps operating margin and -2% EPS growth (or +4% in constant FX). And guidance for 2015 was solid too…fully in-line with our expectation of top-line growth of “around 5%”, with margins and EPS growth in constant FX. We expect a similar year (+4.9% organic growth, +10bps operating margin and flat EPS growth, or +11% in constant FX). More generally, Nestle continues to demonstrate how solid and reliable it is, and we expect this to continue in 2015. We would expect a mildly positive stock reaction.”

Jean-Philippe Bertschy, Vontobel Research

“Real internal growth slightly above expectations, pricing slightly below, organic growth in line at 4.5%. This compares to Unilever 2.9%, Unilever’s food arm -0.6%, Kraft Foods Group 0.9% and Mondelez International at 2.4%.

“[There was] negative 3.2% real internal growth in Asia, Oceania and Africa in 4Q, due to destocking in China. By contrast, Europe and Americas better. Emerging markets with organic growth slowdown from 9% in 3Q to 7% in 4Q, but acceleration in the developed markets from flat growth to close to 3%.

“Margin [was] at 15.3% vs consensus 15.2%. Underlying EPS at CHF3.44 vs consensus CHF3.40.

“Robust results, especially when comparing to competitors. The better-than-expected operating profit margin bodes well as well, hinting to Nestle’s financial discipline and first results of the portfolio streamlining. The dividend increase of 2% is the lowest in years, however still allows an attractive dividend yield. Nestle remains best-in-class in the industry, and a core holding in our view. We hope for more action in M&A and divestments of underperformers.”

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