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Nestlé results fall out: analysts comment

By Rod Addy , 10-Aug-2012
Last updated on 10-Aug-2012 at 13:47 GMT

Analysts raised warnings about aspects of Nestlé's half year results, which were announced yesterday, while broadly welcoming them.

The general consensus on the figures was that growth in organic sales of 6.6% from the maker of brands such as Nescafé and KitKat in the six months to June 30 was ahead of expectations and faster than expected.

For example, Andrew Wood, senior research analyst for European food and household and personal care at Sanford C Bernstein, described the results as “good and broadly above expectations: above on organic sales, slightly below on margins”.

“This was the eighth consecutive quarter with sales growth over 6% and of particular note was the sustained growth in Europe and the emerging markets.”

Emerging market growth

In addition, Wood added: “There is (still) no evidence of a slowdown in emerging market growth, just as with Danone and Unilever.”

There was also positive evidence that cash flow and working capital had become a higher priority for Nestlé, which Wood attributed to investor pressure.

He anticipated that profit margins would recover in the second half of the year, which would enable an increase in marketing investment and margin growth.

Headline figures "excellent"

Aidan O’Donnell, analyst at Davy Stockbrokers in Ireland, said: “What struck me from the Nestlé results, from the headline figures, they look excellent.”

However, he went on: “If you look at the volume [sales] number, there’s pretty anaemic growth and there are still declines in the US. Volume is definitely slowing, which is consistent with what we see in the food space.”

He said if Nestlé, the world’s biggest food manufacturer, was struggling with sales volumes, this indicated the tough climate for smaller firms. “There are a number of other players that would have to be really struggling.”

Ongoing concern

Wood also highlighted some areas of ongoing concern. “There is evidence that organic growth will continue to slow as pricing rolls over and RIG (real internal growth) does not increase enough to compensate ...

“Nestlé’s US business is clearly still in trouble…and the CFO’s (chief financial officer Wan Link Martello’s) opaque and evasive answers about this business were disappointing; and we were surprised to calculate/estimate that the -20bps (basis points) fall in (profit) margin in H1 would have been dramatically worse if not for a major -90bps cut to consumer facing marketing.”

From its overall performance, Nestlé was on track to achieve 5%-6% growth in organic sales for the full year, said Wood. But he remained worried about the US market. “Nestlé US has fallen far when ‘less bad’ is flagged as progress and when market share progress has to be made to look better by using finer category definitions.”

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