Swiss food giant Nestlé has shrugged off rising input costs with a robust start to the year as first-half profits rose by over 14%.
The world’s largest food company said this morning (15 August) that first-half operating profit climbed 14.2% to CHF6.9bn (US$5.7bn).
Turnover for the six months to the end of June reached CHF51.1bn, an increase of 8.4%.
Chairman and CEO Peter Brabeck-Letmathe said the results came despite rising raw material costs.
“These results are due to the strong performance of the food and beverages business and Nestlé’s ongoing transformation into the world’s leading nutrition, health and wellness company,” he said.
However, analysts believe that, as dairy is such a strategic asset to Nestlé, the company must have fixed-price contracts with dairy farmers, similar to those in place at Dutch nutrition group Royal Numico.
Sales from Nestlé’s food and beverages business rose by 3.5% in Europe, buoyed by “double-digit” growth in Eastern Europe.
Revenue from the division climbed 8.7% in the Americas as Nestlé saw strong local ice cream sales and the successful implementation of price increase. Price hikes also boosted sales in Asia, Oceania and Africa, which rose by 10.5%.
Nestlé Nutrition posted the strongest performance from the company’s “product groups”, with sales up 10.5%.
Confectionery sales rose 4.6%, thanks to “double-digit” growth in Brazil, South Asia, Venezuela and the Middle East. Profits from confectionery improved, as Nestlé streamlined the number of brands it sells, particularly in the UK.
Nestlé, however, warned that input costs would impact margins in the company’s more emerging markets during the second half of the year.
The company also cautioned that its round of price increases undertaken during the first half to mitigate against rising raw material costs would “slow volume growth slightly” in the latter part of 2007.
Nestlé added: “Nonetheless, the strong start to the year allows Nestlé to expect above-target organic growth as well as a further sustainable improvement in margins for the full year.”
Meanwhile, Nestlé also announced a CHF25bn share buyback programme to be completed over the next three years.