Nestle Signals Sales to Withstand Recession Better Than Rivals

Nestle SA, the world’s largest food company, signaled that sales will hold up better than some analysts expected as the recession batters consumer spending and prompts rivals to abandon their forecasts.

The Swiss bottler of Perrier water said today that it aims for sales growth excluding acquisitions, disposals and currency swings to “at least approach” 5 percent, compared with its goal for 5 percent to 6 percent growth a year on that basis. Analysts expect a 3.7 percent gain in 2009, the slowest in 16 years, according to the median of 11 estimates.

Nestle, which rose the most in four months in Zurich trading, also reported a 69 percent increase in profit on gains from an asset sale. Earlier this month, the economic outlook and volatile commodity prices prompted food and soap maker Unilever to abandon its forecast, sending its shares tumbling.

It’s “not quite convincing that the Nestle model will hold” as economies deteriorate, said Andrew Wood, an analyst at Sanford Bernstein, in an e-mailed note after the report. “Nevertheless, these results should land Nestle at the top end of its peer class.”

Sales rose 2.2 percent last year to 109.9 billion francs, and organic revenue increased 8.3 percent in 2008, the fourth year that Nestle beat its forecast. Still, shipment growth has slowed as shoppers switch from branded foods to retailers’ private labels. The volume of goods sold rose 2.8 percent in 2008, down from 4.4 percent in 2007, after Nestle relied on price increases to pass on higher raw-material costs.

Shares Rise

Nestle shares rallied from a near 2 ½-year low, jumping 2 Swiss francs, or 5.4 percent, to 29.02 francs at 10 a.m. local time, the day’s high. That’s the most since Oct. 17 and cut the shares’ drop to about 6 percent this year, compared with a 12 percent decline by London- and Rotterdam-based Unilever, the maker of Lipton tea and Magnum ice-cream bars.

“We do not believe that 2009 will be all doom and gloom, as some would make us think,” Chief Executive Officer Paul Bulcke said at a press conference. “Many major emerging economies are still growing, China and India for example.”

Chief Financial Officer Jim Singh said on a conference call that sales are likely to be “picking up pace” during the course of 2009. Nestle’s main agricultural raw materials will probably become about 2 percent more expensive in 2009, in line with inflation, he said.

The maker of PowerBar nutrition foods and Purina pet food will also trim its buyback to preserve cash, saying it will emphasize paying dividends instead.

‘Positive Guidance’

Nestle will spend 4 billion francs buying back stock this year after purchasing 8.7 billion francs worth in 2008. Nestle also said it will increase its dividend for the year by 15 percent to 1.40 francs a share.

“They are still growing, increasing their dividend and buying back shares,” said Dieter Buchholz, head of equities at AIG Private Bank in Zurich. He said Nestle is one of the largest positions in the $107 billion of assets he oversees. “They’re giving positive guidance. You couldn’t ask for more.”

Net income rose to 18 billion Swiss francs ($15 billion) in 2008 from 10.65 billion francs in 2007. Nestle had a gain of 9.2 billion francs on July’s sale of a 25 percent stake in Alcon Inc., which makes eye-care products such as Optifree contact- lens solution.

Missing Estimates

Profit still missed the 20.24 billion-franc median of seven analyst estimates after several one-time charges. The stronger Swiss franc and other currency movements also cut sales growth in 2008 by 7.8 percent, while profit margins shrank in three businesses: powdered and liquid beverages, bottled water and prepared meals.

Nestle said it increased total provisions for litigation to 2.48 billion francs at the end of 2008 from 2 billion francs a year earlier. Its European home and office water-delivery business had an impairment charge of 442 million francs as demand weakened and the company sold units in Italy and the U.K.

Nestle didn’t indicate any change in approach to its stakes in two publicly traded companies, Alcon and cosmetics maker L’Oreal SA. Press and analyst reports have recently speculated about Nestle’s intentions toward both assets.

The food maker has an option to sell its remaining Alcon stake of about 52 percent to Novartis AG between 2010 and 2011, part of the sale agreement struck last year, when Alcon’s shares were about double their current level. Nestle said today that it doesn’t intend to renegotiate that deal.

The sale of the Alcon shareholding fueled speculation that Nestle may use the proceeds to bid for L’Oreal, in which it holds a 29 percent stake.

Nestle today said it doesn’t need to make any decision on the L’Oreal stake in April. That’s when part of a so-called lock-up agreement expires with the other major shareholder, Liliane Bettencourt, allowing the food company to sell the stake. The company isn’t in a “hurry,” Singh said.