Nestlé on track for rising sales despite pressures

NESTLÉ EXPECTS pressure from the rising price of ingredients for its products such as chocolate bars, coffee and soup to ease, helping it meet its target for increasing sales despite tough markets.

The world’s biggest food group yesterday beat forecasts with a 6.6 per cent rise in underlying first-half sales as volume growth ticked up, unlike many of its rivals.

Global food prices are near record highs, in part because of soaring grain futures. But many of Nestlé’s most important ingredients, such as coffee, sugar and dairy products, are less affected than cereals. Nestlé’s sales growth was driven by strong demand from emerging markets and price increases, as the company managed to pass on the cost of its raw materials to consumers.

The firm also reported solid performance in Europe, despite its weak economy. Nestlé said the rising cost of its ingredients resulted in an increase of 0.5 per cent in the cost of goods sold.

The worst US drought in more than 50 years has pushed up grain prices sharply. The United Nations food agency said yesterday that world food prices surged in July and could rise further.

Nestlé said it expected price rises for its ingredients of only in the low to mid-single digits for the rest of the year, in line with its earlier forecasts and keeping it on track for its target of underlying sales growth of 5-6 per cent.

While cocoa prices are surging, coffee prices are well below two-year highs on expectations of a good harvest in top producer Brazil. Sugar prices are also down on expectations of a good harvest and milk prices have been falling.

Nestlé’s first-half sales grew 12.9 per cent in emerging markets, compared with just 2.6 per cent in developed markets. Volume growth in Europe was practically flat, although the company still had some expansion in the continent’s troubled southern nations.

Strong emerging markets also helped Unilever avoid the profit warnings by its French and US peers Danone and Procter Gamble, but it warned of tougher times ahead due to difficult economies and volatile input costs.

Analysts contrasted Nestle’s performance in Europe, where it had 2.4 per cent organic growth, with Unilever’s fall in sales in the region of 2.2 per cent in the second quarter. – (Reuters)