Shares in Nestle closed up today (7 August) after the world’s largest food maker reported underlying sales that beat analyst expectations. Nestle’s stock would have been helped by news of a share buyback but analysts were broadly positive about the company’s performance.
“Q2/H1 was quite pleasing, led by better-than-expected organic top-line growth and the announcement of a CHF8bn (US$8.8bn) share buyback. With H1 growth [of] +4.7%, Nestle is well on its way to meeting/beating FY guidance of around +5% organic growth. The growth in the emerging markets (+11% in Q2 and +10% in H1) was especially pleasing, although Nestle also saw growth in the developed markets, Zone Europe well ahead of expectations in Q2. The only slight disappointment was that EPS was a little light given a higher-than-expected forex impact, and the impact of non-operating items” – Sanford Bernstein analyst Andrew Wood.
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“There should be an acceleration in organic growth as the emerging markets are gradually picking up in particular Brazil as well as Asia-Pacific show a gradual growth acceleration. However, growth in China remains weak. Russian growth continues to be good but the situation remains fluent. Secondly, in Europe the deflationary environment continues but there are several European markets, which show positive growth momentum like Spain and Portugal as well as France. French Q2 volume growth picked-up and the deflationary environment was weaker than expected. A positive surprise on the higher-than-expected share buy-back. However, due to a higher tax rate we will leave our EPS estimates unchanged” – Alain Oberhuber, MainFirst.
“At +4.7%, Nestle’s organic sales growth in the first half of the year was better than expected. This is particularly clear when looking at the growth rates recorded by the company’s rivals – Unilever 3.7%, Danone 2.2%, Givaudan Aromen 4.2%. However, due to a substantial negative currency effect of -8.8%, sales fell 1% short of the consensus forecast. Now that the current exchange rates are more favourable in the second half of the year, the negative currency effects will drop off substantially. As forecast by the consensus, the EBIT margin fell back by 10 basis points due to a rise in raw material costs, but rose by 30 bp in local currencies. The guidance was confirmed as anticipated, but is only now within the company’s reach following the strong first half of the year. Compared to the rest of the sector, we believe Nestle should earn a premium of 5% to 10%, which is not the case at present” – Patrik Schwendimann, Zuercher Kantonalbank./p>
“Nestle’s organic growth above expectations thanks to pricing. We note organic growth of 0.6% in Europe in spite of negative pricing. Zone Americas above expectations as well. By contrast, disappointing Asia, Oceania and Africa with 0.9% real internal growth in 2Q, unusual for Nestle in that region. Both Danone and Unilever reported similar organic growth in 1Q and 2Q, while Unilever Foods recorded a growth deceleration. Nestle is one of the very few players in the consumer goods sector not to disappoint the market in 1H14, and not giving a profit warning for FY14. In a first analysis, results are solid, especially in Zone Americas, while Nestlé reported some weakness in Asia, Oceania and Africa. Growth in the emerging markets remained solid at close to 10%. Nestle was able to grow above 5% in 2Q, which is a positive signal in our view” –Jean-Philippe Bertschy, Bank Vontobel.
just-food’s view: Some in the market have been concerned about Nestle, with its performance in 2012 and 2013 under scrutiny. However, the Swiss food giant’s first-half results were solid and compared favourably with its peers. Headline reported results were affected by the strength of the Swiss franc but, looking deeper at the numbers, Nestle was boosted by a generally good showing in emerging markets and even growth in developed markets.
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