Nestlé beats proftit expectations but RIG below target

First-half net profits at the world's largest food and beverage group, Nestle, rose 79.4 per cent to SF5.66 billion (€3.9 billion), the group said on Wednesday, boosted by the partial initial public offering of its eye care unit Alcon.

While net profit was above expectations, first-half sales, which were boosted by Nestle's $10 billion acquisition of US pet food firm Ralston Purina, rose 7.2 per cent, a touch lower than expected by analysts.

The maker of Nescafe coffee, Perrier water and Friskies pet food said it expected continued progress in terms of sales and profits on a constant currency basis in 2002, predicted further operational efficiencies, and said it would meet its core real internal growth (RIG) target.

First-half RIG, which strips out the effects of currency movements and aquisitions, rose 3.5 per cent, in line with expectations but below its full-year four per cent target.

Group sales totalled SF44.22 billion. Operating earnings before interest, tax and amortisation (EBITA) rose 13.5 per cent to SF5.2 billion, a touch lower than expected.

A sector favourite, the stock has matched peers this year but outpaced big rivals such as Danone, Unilever and Cadbury Schweppes over three years.

Unilever raised 2002 earnings forecasts last month and Cadbury's first-half figures were at the top of expectations. Danone missed first-half expectations but promised to achieve full-year targets.

Nestle has been on a buying spree recently and is mentioned as a possible bidder whenever a business comes up for sale in the fast consolidating food sector.

Nestle said this month it would buy Chef America for $2.6 billion, just months after it said it would take over Dreyer's Grand Ice Cream in a multi-billion franc deal.

Analysts also expect it to consider a bid for Hershey Foods, valued at around $12 billion, and Pfizer's Adams unit which could cost around $4 billion. Nestle last week reiterated its interest in part of the health and functional food unit of Novartis, put up for sale earlier this year.

Cash-rich Nestle can afford it, with the real question being whether it would jeopardise its top credit rating which allows it to borrow money more cheaply than lower-rated rivals.

However, some analysts are nervous. Merrill Lynch downgraded the stock to intermediate "neutral" from "buy" on Tuesday citing the impact of restructuring and acquisitions on returns.