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Nestle sees tough 2012 after price hikes help sales

04/20/2012 | 05:24am US/Eastern

Nestle (>> Nestle SA), the world's biggest food group, warned 2012 would be a tough year due to sluggish growth in the developed world as emerging market demand and price rises helped first-quarter underlying sales growth hold up better than expected.

Nestle (>> Nestle SA), the world's biggest food group, warned 2012 would be a tough year due to sluggish growth in the developed world as emerging market demand and price rises helped first-quarter underlying sales growth hold up better than expected.

The Vevey-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soup reported a slight deceleration in quarterly organic sales growth that still beat forecasts as price hikes contributed more to growth than analysts expected.

"As anticipated, 2012 is already confirming itself to be a challenging year," said Chief Executive Paul Bulcke.

"In many developed markets where consumer confidence is low, the trading environment is subdued while in most emerging markets, conditions remain dynamic and rich in growth opportunities."

Emerging markets - which already make up more than 40 percent of Nestle sales - grew 13 percent compared with just 3.1 percent for developed countries, with volume growth down 0.4 percent in the Americas and only rising 0.2 percent in Europe.

"A strong set of figures although we see the outlook statement as somewhat subdued and expect organic growth to decelerate through the remainder of the year," said Kepler analyst Jon Cox.

Nestle shares fell 0.5 percent to 56.90 francs at 5:20 a.m. EDT compared with European food and beverage index <.SX3P> 0.1 percent lower.

They had hit an all-time high of 57.50 francs on Thursday in anticipation of good results after French rival Danone (>> DANONE) posted strong sales.

Liberum Capital analyst Pablo Zuanic said deceleration in the Americas and Europe was "somewhat of a concern".

RAW MATERIALS PRICING IMPROVING

Nestle said high commodity prices were still a headwind for the first half of the year but predicted a "likely improved raw material environment" in the second half, allowing it to confirm a full year outlook of 5-6 percent organic growth.

That meant Nestle's forecast for improved margins in constant currencies would be more weighted to the second half of the year, investor relations head Roddy Child-Villiers told an analysts' call.

Organic sales growth for the first quarter slipped to 7.2 percent from 7.5 percent in 2011, exceeding the 6.6 percent forecast in a Reuters poll of analysts.

Sales including foreign exchange fluctuations rose 5.6 percent to 21.4 billion Swiss francs ($23.40 billion).

Nestle said price increases contributed 4.4 percent to underlying sales growth, compared with analyst forecasts for 3.7 percent, while volume growth of 2.8 percent was as expected.

Danone reported better-than-expected underlying sales growth of 6.9 percent for the first three months as its key Russian and U.S. markets returned to growth.

But Danone, which is the most exposed among big food groups to the euro zone debt crisis with around 40 percent of sales in the region, warned that deteriorating market conditions in Spain would hit the full year.

Bernstein analyst Andrew Wood noted that Nestle grew faster than Danone for the third consecutive quarter but was more cautious for the rest of the year than its peers.

Nestle said the North American market continued to be hit by weak consumer sentiment, with growth falling in several categories where it hiked prices, including frozen food.

But it maintained growth in most of western Europe including Britain, France, Italy, the Iberian peninsula and Switzerland as Nescafe and pet food sold well, while Russian sales were hit by the poor economy and a realignment of distribution networks.

Nestle bottled water had its best quarter in almost five years, with underlying sales growth up to 8 percent from 5.2 percent in 2011, with a strong performance in North America and double-digit growth of its emerging market Pure Life brand.

The world's biggest bottled water company with brands like Perrier and San Pellegrino has seen sales suffer in recent years as hard-pressed consumers have switched to tap water and amid environmental campaigns against the business.

Nespresso, Nestle's fastest-growing big brand which said on Thursday it had won a patent battle with rivals, delivered underlying sales growth of around 20 percent, with demand growing around the world.

Child-Villiers said the European patent ruling should help Nespresso as it pursues court cases in individual countries.

Nestle did not comment on a deal it is expected to seal this month to buy Pfizer's (>> Pfizer Inc.) infant nutrition business for up to $10 billion to boost its business in China and extend its lead in the world of formula milk for babies.

($1=0.9145 Swiss francs)

(Reporting by Emma Thomasson; Editing by Helen Massy-Beresford)

By Emma Thomasson

Stocks treated in this article : DANONE, Nestle SA, Pfizer Inc.
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