Nestlé’s organic sales up 3.5%, falls short of estimates

Posted by James Ferre on 12th August 2009

The world’s largest food manufacturer has reported organic sales growth of 3.5% in the first half of 2009, although the strength of the Swiss franc and divestitures ensured that sales in their reported currency fell 1.5%.

“With 3.5% organic growth and a 30 basis point EBIT margin improvement, Nestlé delivered a combination of growth and increased profitability in the first half of the year, and this in a very challenging business environment,” CEO Paul Bulcke said.

Nestlé saw their food and beverages division reap organic sales growth of 3.4%, building on the 8.9% surge in sales in the corresponding period last year.

Their European sector was flat in the first half, but their ‘Americas’ and ‘Asia, Oceania and Africa’ sectors managed to record robust growth in like-for-like sales.

In Asia, Oceania and Africa, the maker of the Kit-Kat reported a 5.9% boost to sales with emerging markets in Africa, China, India and the Philippines leading the way.

“Soluble coffee, ambient culinary, powdered and ready-to-drink beverages, petcare and chocolate all delivered strong organic growth,” the company noted. “Popularly Positioned Products (PPPs), aimed at emerging consumers, continued to achieve double-digit organic growth.”

In terms of specific products sectors, the company’s water division was again the laggard. Consumer demand for water in many western markets has fallen due to environmental campaigning and the economic downturn, with Nestlé advising that their sales decline of 2.9 per cent was roughly in line with the overall market.

Powdered and liquid beverages, on the other hand, were the best performed division by sales, with like-for-like growth of 9.7% thanks to strong brands such as Milo, Nescafé and Nespresso. The spurt in sales came at a cost, however, with the EBIT (earnings before interest and tax) margin declining by 110 basis points.

Nespresso was the standout brand with organic sales up over 25% – double-digit growth was seen in Eastern Europe, the Americas, Asia, Oceania, the Middle East and Africa.

Outlook

“The success of our efficiency initiatives enabled increased investment in consumer-facing marketing and R&D, which leads me to expect an acceleration in organic growth in the second half of 2009,” Mr Bulcke said. “The Group remains committed to its strategic direction focused on sustainable, long-term profitable growth and is well placed to capture opportunities as economic conditions improve.”