Nestlé on course to hit full year growth targets after first-half profits rise

‘Increased momentum’ in the US and China saw Nestlé’s net profits jump 19% in the first half of the year.

Nestle said net profit rose to CHF 5.83bn ($5.86 billion), up from nearly CHF 4.9bn a year earlier.

The Vevey, Switzerland-based company reported organic growth, or growth not linked to acquisitions, of 2.8% in the first half of the year and reports it is on course to hit full year growth targets.

'Challenging environment'

The Swiss food and beverage giant reported real income growth of 2.5% while pricing contributed 0.3%, reflecting a “challenging” environment in Europe and lower inflation in some emerging markets.

Total sales increased by 2.3% to CHF43.9bn ($44.2bn) in the second quarter, but prices rose by just 0.2% as retail partners, under pressure from discounters and online rivals, fight to keep costs down.

The company said acquisitions and divestments had a net neutral impact on top-line growth as the acquisition of Atrium Innovations and other deals was offset by divestments.

In January, Nestlé sold its US confectionery business to the Ferrero Group​ in an estimated US$2.8bn deal.

Earlier this year Nestlé and Starbucks formed a “global coffee alliance” striking a US$7.15bn coffee licensing deal. Last year, Nestlé acquired a majority stake in Blue Bottle Coffee, a Californian-based high-end specialty coffee roaster and retailer, popular with hipsters and discerning coffee drinkers.

The group confirmed its full year guidance, with organic sales growth expected to grow by 3%. Underlying trading operating profit margin will continue to improve in line with its 2020 target and restructuring costs are expected at around CHF 700m ($704m) for the year.

Under pressure

Nestle has also come under pressure from New York-based hedge fund Third Point, run by investor Daniel Loeb, demanding a bolder and faster overhaul at the world’s largest food group.

Mark Schneider, Nestlé CEO said: "Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off. Nestlé has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year. In particular, the United States and China markets showed a meaningful improvement. We were also pleased by the enhanced organic growth in our core infant nutrition category.​

“Our margin development is fully consistent with our 2020 target. We are creating value by pursuing growth and profitability in a balanced manner. In line with this approach, we have accelerated our product innovation efforts to drive future growth and initiated significant cost reduction efforts, in particular in Zone EMENA and at our Corporate Center​.

“As we look towards the second half of 2018, we expect further improvement in our organic revenue growth. Margin improvement is expected to accelerate with further benefits from our efficiency programs and more favorable commodity pricing​."

Nestle is the fifth largest confectioner in the world behind Meiji Co. Ltd; Ferrero Group; Mondelez International and Mars Wrigley Confectionery.