Nestle cautions on challenge of slowing sales

GENEVA • Swiss food and drinks giant Nestle SA posted a 3.7 percent rise in first-half profits Thursday, but warned it would not be easy sticking to its sales targets as it tackles slowing markets around the world and "value-conscious" consumers.

Investors sent shares down 2.4 percent to 63.15 Swiss francs in afternoon trading on the Zurich stock exchange, after Nestle released its first-half statement showing that underlying sales growth was at its lowest in four years.

Based in Vevey, Switzerland, Nestle is the world's biggest food and drink company by revenue and the maker of dozens of household name brands such as Nescafe, Haagen Dazs, Jenny Craig and KitKat. It also is a major buyer of food commodities, and its results can serve as an indicator of the entire food industry, worldwide consumer demand and health of the global economy.

Nestle said it had first-half profits of 5.1 billion Swiss francs ($5.5 billion) in the January to June period, up from a restated 4.9 billion francs in the same period last year.

Underlying sales growth fell to 4.1 percent for the first six months of the year, down from 6.6 percent in the comparable period a year earlier. In 2011, its first-half rate was 4.8 percent; in 2010, it was 6.1 percent. But midway through 2009, amid a global financial crisis, its growth rate fell to 3.5 percent.

However, the company said it expects first-half momentum in so-called organic growth to continue in the second half, increasing to about 5 percent. The "Nestle Model" calls for the company to always sustain a 5-6 percent rate of organic revenue growth.

"It's not going to be easy. It's going to be a stretch," Chief Financial Officer Wan Ling Martello conceded during a webcast teleconference with investors and journalists.

Contending with cash-strapped consumers, both in Europe and emerging markets, Nestle said its growth in developing markets slowed to 8.2 percent, down from 12.9 percent during the comparable period a year ago, while growth in developed markets fell to 1 percent, down from 2.6 percent last year.

Nestle said its sales rose 5.3 percent to 45.2 billion francs, up from a restated 42.9 billion francs in the comparable period a year ago.

The company's prices have been adjusted downward in many countries to make its products more attractive for cash-strapped consumers, said Martello.

Prices are set by local managers, not by global headquarters in Switzerland, she added, describing the process as the company "doing the right thing for our consumers, and therefore doing the right thing for our business."

Chief Executive Paul Bulcke said the first half shows "a balanced performance, both top and bottom line, in an environment of lower growth and lower input costs."

The underlying sales growth, he said, was "somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today's more value-conscious consumers."