Nestle Warns of US Slowdown as Earnings Beat Forecasts
08/09/2012| 02:12am US/Eastern
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By John Revill
ZURICH--Swiss food giant Nestle SA (NESN.VX) Thursday warned of a slowdown in its key U.S. market but maintained its outlook for the year as it reported better-than-expected increase in half-year profit.
The world's largest food company by sales, maker of Kit Kat chocolate bars and Nescafe instant coffee, said the trading environment in North America in particular was "challenging" as sales volumes there declined.
"In North America, where consumer confidence continued to be low, several food categories were under pressure including frozen food," the company said in a statement.
Nestle, based in Vevey, Switzerland, said net profit for the first six months of 2012 rose 8.9% to 5.12 Swiss francs ($5.28 billion) from CHF4.7 billion, beating analyst expectations of CHF4.94 billion. Sales rose 7.5% to CHF44.1 billion from CHF41 billion, above forecast of CHF43.79 billion. Its closely-watched organic sales growth, which strips out the impact of acquisitions, disposals and currency fluctuations, rose 6.6%, compared with 7.5% in 2011 and better than the 6.2% forecast by analysts.
Nestle has been losing market share to supermarkets' own-brand products and rival companies, while overall sales volumes have declined and gains from higher prices have slowed.
The U.S. slowdown is another concern for food companies, still reeling from a lower demand in Europe amid the debt crisis where consumers have cut back spending as a result of lower consumer confidence, rising unemployment and stretched household budgets.
French rival Danone SA (>> DANONE) last month said it didn't expect the economic environment to improve any time soon after it reported its weakest quarterly sales growth in dairy products since 2009 and Anglo-Dutch consumer products company Unilever NV (>> Unilever N.V.) posted a fall in profit in the first six months, signaling a worsening global economy and further troubles in Europe.
Sales volumes increased by 2.9% overall, but this was driven mainly by emerging markets in Asia, Oceania and Africa, where growth is being fueled by rising incomes.
In the Americas, sales volumes fell by 0.1%, and in Europe they increased by just 0.1%.
The company maintained its outlook for the year, saying it expected organic sales growth of 5% to 6%, and improved margins and earnings per share in constant currencies.
Nestle shares closed Wednesday at CHF56.95, valuing the company at CHF192.4 billion, up 10% since the start of the year.
Write to John Revill at john.revill@dowjones.com
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