Nestle Hikes Prices, Sees Growth Ahead

VEVEY, Switzerland (TheStreet) -- Nestle (NSRGY) had an admittedly "tough" first half as higher costs and a stronger Swiss franc pressured results and offset price increases, but the world's biggest food company sees growth ahead, particularly in emerging markets.

Nestle's Kit-Kat bars.

Nestle said it expects full-year sales to grow at the high end of its 5% to 6% forecast, and that margins in constant currencies would widen. A strong Swiss franc -- the currency in which Nestle reports its results -- cut first-half revenue by 13.8%.

Strong sales, particularly in emerging markets, helped the maker of Kit Kat, Carnation and Nescafe brands book 7.5% growth in first-half sales, indicating that second-half revenue will continue to face headwinds considering its full-year outlook.

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Volatile costs for ingredients and raw materials represent some of those headwinds, along with "subdued" consumer spending in developed markets and economic instability on a global scale.

Passing higher costs for things like sugar, cocoa and coffee onto consumers can only help so much. Nestle raised prices on many of its products in the second quarter, even more so than it had in the first, just as fellow multinationals Kraft Foods (KFT) and Uniliver (UN) did.

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"Investing in our business, both organically and through bolt-on buys, and increasing our dividend is our priority," said CFO James Singh, commenting that acquisition opportunities would be considered around the world.

Singh's comments, and Nestle's word that it would not initiate a new share- buyback program, stoked rumors that Nestle might consider acquiring Pfizer's (PFE) nutrition business, a unit the pharmaceutical company said in July it was looking to unload.

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Nestle's net earnings in the first-half fell 12.7% year over year to 4.7 billion francs ($6.33 billion). Excluding the impact of the divestiture of its Alcon eyecare business, profit was flat.

American depositary receipts of Nestle fell 2.3% to $62.42 in morning trading in New York as the major stock indexes tumbled nearly 4% after the Federal Reserve vowed to keep interest rates near zero for at least two more years.

--Written by Miriam Marcus Reimer in New York.



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