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Coffee, ice cream raise Nestle profits

China Daily | Updated: 2008-02-22 07:17

Nestle SA, the world's largest food company, raised second-half profit 14 percent, beating analysts' estimates, after passing on higher commodity costs to consumers by increasing prices of Dreyer's ice cream and Nescafe instant coffee.

Net income rose to 5.73 billion Swiss francs ($5.2 billion) from 5.05 billion francs a year earlier, according to full-year earnings released yesterday by the Vevey, Switzerland-based bottler of Perrier water.

That beat the 5.33 billion-franc average estimate of 13 analysts in a Bloomberg survey. Revenue increased 10 percent to 56.4 billion francs, Bloomberg calculations show.

Nestle increased prices by the most in at least four years in 2007 to recoup increases in the cost of the sugar, milk and wheat used to make Buitoni pasta and KitKat chocolate bars.

US and European consumers have pared spending because of higher interest rates, weakening housing markets and rising energy prices.

"Nestle can deliver excellent results even when faced with tough operating conditions," Andrew Wood, an analyst at Sanford C. Bernstein with an "outperform" rating on the stock, said in a note before the results. "Nestle is the strongest and most balanced company in the European food group."

Revenue rose

Nestle's 2007 revenue rose 7.4 percent excluding purchases, divestments and currency swings, beating the company's target for growth of 5 percent to 6 percent for a third year.

The maker of Maggi bouillon cubes said it plans to raise its dividend for the year by 17 percent to 12.20 francs a share.

Nestle fell 13.5 francs, or 2.8 percent, to 466.25 francs in Zurich trading on Wednesday. The shares have dropped 10 percent this year, less than the Dow Jones Stoxx 600 Index's 12 percent slide.

Slowing shipments may curb sales growth, outgoing Chief Executive Officer Peter Brabeck-Letmathe said in October. Brabeck-Letmathe, who in April will be succeeded as CEO by Paul Bulcke, said last month that Nestle will meet its long-term sales and profitability targets in 2008 even if the United States enters a recession.

"US consumption may show some weakness," said Jerome Schupp, who helps Bank Syz manage about 30 billion francs, including Nestle shares.

"Commodity prices may put some pressure on the gross margin, but that should ease during the year."

Surging commodity prices are adding to costs across the food industry.

Kraft Foods Inc, whose Kenco coffee and Cote d'Or chocolate compete with Nestle products, said last month fourth-quarter profit fell 6.3 percent as dairy costs rose by 50 percent.

Pricier coffee

Among the most important commodities for Nestle, robusta coffee costs 51 percent more than a year ago, sugar prices have climbed 19 percent, and cocoa has increased 34 percent.

Brabeck-Letmathe has said commodity prices will never drop back to the levels of the past decade.

Brabeck-Letmathe will remain chairman after being succeeded as CEO by Bulcke, head of Nestle's business in the Americas.

Full-year net income climbed 16 percent to 10.65 billion Swiss francs, or 27.81 francs a share, Nestle said, beating the 10.2 billion-franc average analyst estimate. Sales gained 9.2 percent to 107.6 billion francs.

Bloomberg calculated second-half earnings by subtracting first-half results from the figures the company reported yesterday.

Agencies

(China Daily 02/22/2008 page17)

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