Nestle posts sales growth
The group said it expected pressure from the high prices of basic foodstuffs to ease
By CFOWorld staff | CFO UK | Published 14:29, 09 August 12
Nestle reported underlying sales growth of 6.6 percent as the food group said it expected pressure from the high prices of basic foodstuffs to ease in the second half of the year.
A fall in prices would help the group to meet its sales growth target in tough markets after first-half results beat forecasts.
Nestle is maintaining its outlook for input prices to rise in the low to mid-single digits for the year, chief financial officer Wan Ling Martello said, without giving details.
While cocoa prices are surging, coffee and sugar prices are down on expectations of a good harvests in top producer Brazil and milk prices have also been falling.
The world's biggest food group said underlying sales rose 6.6 percent as volume growth ticked up, which analysts said was unique in the sector.
Growth was driven by strong demand from emerging markets and price increases, as the company managed to pass on the soaring cost of its raw materials to consumers.
Nestle also reported solid performance in Europe, despite its weak economy, as the company sold more affordable goods like its Nescafe 3-in-1 soluble coffee, KitKat and new peelable banana ice cream.
Analysts had on average forecast 6.3 percent sales growth.
The Swiss-based company, which is a big consumer of raw materials such as coffee, cocoa and milk, said input cost pressure resulted in an increase of 50 basis points in the cost of goods sold.
World food prices surged in July after falling in the previous three months and could rise further, the United Nations food agency said on Thursday. The agency bases its price index on a food basket including cereals, dairy and sugar.
Nestle said it expected commodity price pressures to ease in the second half, helping it meet its long-term target for underlying sales growth of 5 to 6 percent this year despite the tough business environment, especially in developed markets.
The worst US drought in over half a century has pushed up grain prices sharply, but cereals only make up a relatively small part of Nestle's raw material costs and the company is well hedged against other commodity prices.
First-half sales grew 12.9 percent in emerging markets, compared with just 2.6 percent in developed markets, with volume growth in Europe practically flat although the company still saw some expansion in the continent's troubled southern nations.
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