Nestle expected to release record sales results
ZURICH , Switzerland Despite rising costs for such ingredients as flour and milk, Nestle is expected to break sales records when it releases results on Thursday. Markets will be seeking assurances that a push by the world’s largest food group, into healthy foods and strong name brands will pay off, as global economic growth cools, but food inflation stays hot.
“Nestle has a well-balanced portfolio where its brand diversity means that there is no major reliance on a few key categories and slower-performing brands are offset by strong performers,” Bear Stearns analysts said in a note. “We expect Nestle’s high brand density to continue to increase going forward due to the strength and growth profile of its big brands.”
Nestle, which makes Nescafe coffee and KitKat chocolate bars, has managed to increase profits and profitability despite record prices for key food inputs such milk and cocoa.
Nestle’s strong brands, which include Buitoni pasta, Maggi soups and Friskies cat food, are expected to command loyalty from consumers in rich countries. But rising prices for food in developing markets may be approaching the point where some consumers retreat, experts say.
Investors will also look for any indications Nestle aims to sell its 75 percent stake in U.S. contact lens company Alcon or its 29 percent stake in French cosmetics group L’Oreal. The Alcon stake has a market value of about $34 billion, and the L’Oreal stake about $22 billion.
Nestle is seen posting an 11 percent increase in net profit to 10.22 billion Swiss francs ($9.33 billion), according to the average of a Reuters poll of 14 analysts. It is also expected to break the 100-billion-franc barrier for the first time with annual sales of 107 billion, the poll showed.
Nestle chief executive officer Peter Brabeck has said the group will reach its organic sales growth target of 5 to 6 percent in 2008.
Brabeck, who will pass the chief executive officer baton to Paul Bulcke later this year and remain as chairman, has said the group has the wherewithal to weather an economic slowdown in the United States, where Nestle generates around 30 percent of its profit.
Analysts see food groups’ pricing power—their ability to raise prices without killing demand—as perhaps the single best indicator of how they will fare in an environment of unprecedented food inflation.
In general, the weaker the brand name and customer loyalty to that brand, the more difficult it is to raise prices.