Price increases and strong growth in emerging markets helped Nestlé SA, the world’s biggest food company by sales, to increase profit 8.9 per cent in the first half of the year, beating market expectations.
Some analysts had recently suggested that market share loss in the United States might cause Nestlé, which makes the Kit Kat chocolate bar and Nescafé coffee brands, to miss its full-year sales growth targets of between 5 and 6 per cent.
Paul Bulcke, chief executive officer, reiterated the target, however, as the Swiss company reported that profit in the six months to June 30 came in at 5.1 billion Swiss francs ($5.2-billion), up from 4.7 billion Swiss francs in the same period a year earlier, and ahead of the market consensus of 4.9 billion. Earnings per share were 1.60 Swiss francs.
Sales rose 7.5 per cent to 44.1 billion Swiss francs. Organic sales advanced 6.6 per cent, 2.9 percentage points of which was owing to higher volumes, and 3.7 percentage points of which was the result of price increases.
However, the price rises were not enough to stop the group’s operating margins from narrowing slightly to 14.9 per cent, as input costs also rose.
Andrew Wood, an analyst at Bernstein, described the results as “good,” noting that all Nestlé’s regional businesses beat expectations and adding that with commodity prices likely to ease, he expected a return to margin growth in the second half.
Mr. Bulcke said Nestlé would continue to target customers in emerging markets, which were the company’s best-performing regions during the first half.
“We are continually opening new routes to market to reach emerging consumers, and using new media to increase both our direct engagement with consumers and our return on brand investment,” he said.
Nestlé’s strongest growth occurred in Asia, Oceania and Africa, where revenue rose 11.6 per cent, thanks to “deeper and wider” distribution, as well as the new-found affinity of Chinese consumers for its Nescafé Smoovlatté and Shark wafer brands.
Sales in the Americas, Nestlé’s largest market, improved 5.7 per cent, as North Americans gobbled up Pizza Dipping Strips, while in Latin America, Nestlé’s chocolate, coffee and pet food were all enthusiastically received. European revenue rose 2.4 per cent, although volumes were all but flat.
Nestlé expects the tough trading conditions, especially in developed markets, to persist during the next six months. However, it says it believes cost pressures will ease. As a result, the group expects to improve both operating margins and earnings per share.