Nestle share price jumps as H1 sales growth tops estimates

Nestle SA, the worlds biggest foodmaker, reported on Thursday better-than-expected first-half sales growth that allowed it to reaffirm its 2015 outlook despite a major recall of Maggi noodles in India.

The Swiss company said that sales in the six months ended June 30th grew by 4.5% on an organic basis, composed of 1.7% real internal growth and 2.8% pricing. The measure, which ignores the effect of currency swings and acquisitions, topped analysts projections for growth of 4.2%, with Nestle still expecting annual sales growth of 5%.

Revenue slid 0.3% to CHF 42.84 in the first half, compared to analysts projections for a 0.1% drop, while net profit declined 2.5% to CHF 4.52 billion from CHF 4.63 billion a year earlier, defying projections for a 2.4% jump to CHF 4.74 billion.

Negative foreign exchange swings had a sizable effect on the companys H1 performance, with the strong franc reducing revenue for the period by 5.8%, while acquisitions, net of divestitures, added 1% to sales. Underlying earnings per share rose 7.3% in constant currencies.

“The first half results were in line with our expectations, broad-based across categories and geographies, solid even in difficult circumstances, and consistent with our strong performance over time,” said Nestle Chief Executive Paul Bulcke. “They reflect the relevance and strength of our Nutrition, Health and Wellness strategy and our discipline in execution. Our investments in the new growth platforms Nestlé Health Science and Nestlé Skin Health are delivering and complement the good momentum in our food and beverages businesses. This allows us to confirm the outlook for the full year.”

Like other consumer goods companies, Nestle has been suffering from slowing sales in emerging markets as once rapidly growing economies like China and Brazil are now cooling, while European consumers remain cautious. Nestle said sales growth in emerging markets slid to 7.3% from 9.7% in the first half of 2014, but developed markets saw sales rise 2.2%.

The company was also troubled by a recall of its Maggi instant noodles in India, one of the biggest local sellers, which resulted in a 20% drop in second-quarter sales at the Indian unit, the first quarterly loss in at least 15 years. Nestle faces a demand for nearly $100 million in damages from the Indian government but said on Thursday it is “engaging fully with the authorities as we work to relaunch the product”.

The food company said organic growth was 6.6% in the Americas (AMS), 3.4% in Europe, Middle East and North Africa (EMENA) and 2.2% in Asia, Oceania and sub-Saharan Africa (AOA), adding that the robust H1 results allowed it to reconfirm its full-year outlook – organic growth of around 5% with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency.

“Overall, positives outweigh negatives and this will give added confidence that Nestle can get closer to 5 percent organic growth for the year,” said Societe Generale analyst Warren Ackerman, cited by Bloomberg.

Nestle SA rose 2.98% to CHF 74.35 per share by 08:22 GMT in Zurich, marking a year-on-year gain of 7.52%. The company is valued at CHF 230.20 billion. According to the Financial Times, the 24 analysts offering 12-month price targets for Nestle SA have a median target of CHF 75.00, with a high estimate of CHF 87.00 and a low estimate of CHF 63.00. The median estimate represents a 3.88% increase from the previous close of CHF 72.20.