Nestle on track in 2009

by Josh Sosland
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VEVEY, SWITZERLAND — Strength was evident in a number of key U.S. food categories in the most recent sales update issued by Nestle S.A.

In the nine months ended Sept. 30, Nestle sales were 79,547 million Swiss francs ($79 billion), down 2.2% from the first nine months of 2008. Real internal growth year to date was a positive 0.7%. Bringing aggregate growth down was a negative 5.5 percentage point impact of exchange rate swings, 0.7 point impact from divestitures and a positive 2.8 point impact from pricing.

The nine-month real internal growth rate of 0.7% represented an acceleration from the first half of the year, when the rate of growth was 0.1%.

In the Zone Americas market, food and beverage sales were 23,393 million Swiss francs ($23.1 billion) in January-September, a 2.3% rate of real internal growth.

Bolstering sales was accelerating growth in the ice cream, instant coffee, chocolate and pet care businesses in the United States with slower growth in frozen food. In its U.S. waters business, Nestle has gained market share during the first nine months of the year, but the company described the overall category as "weak."

In its Nestle Nutrition segment, Jenny Craig was adversely affected by "weak discretionary spend in the United States," the company said.

In an Oct. 22 conference call, Roddy Child-Villiers, head of investor relations, said infant nutrition volumes were accelerating in all its major markets worldwide.

"In North America we are seeing similar trends to earlier in the year, with more mothers moving to WIC contracts (The Special Supplemental Nutrition Program for Women, Infants, and Children) and a continued strong performance from Gerber and, particularly, Gerber Graduates."

Elaborating on various food categories in North America, Nestle said its ice cream business "increased its leadership position in the United States, its biggest market, with strong communication around nutrition-focused innovations, particularly in the super-premium segment."

Similarly, Nesquik in North America benefited from its "health and wellness profile," Nestle said.

Of its frozen foods business in the United States, Nestle described strength in certain lines but weakness in certain Stouffer’s products as well as Lean Cuisine.

"Hot Pockets and Stouffer’s family packs performed well, but demand was weaker for its single-serve offerings and for Lean Cuisine," the company said.

Offering an update on guidance for 2009, Nestle said year-to-date performance was in line with expectations.

"The group therefore continues to expect volume-driven organic growth to further accelerate as well as an EBIT margin improvement in constant currencies for the full year," Nestle said.

"In these challenging times we have been streamlining our structure and product portfolio and, at the same time, we continue to invest in innovative technologies and expand our research and development capabilities around the world," said Paul Bulcke, chief executive officer, commenting on the year-to-date results.

Nestle said its board of directors has authorized an increase of its 2009 share buyback program to 7 billion Swiss francs ($7 billion) from 4 billion. As a result, the company’s 25 billion Swiss franc buy back will be completed more quickly than planned.

"The board of directors expressed satisfaction at Nestle’s current credit rating which allow easy access to financial markets and attractive pricing during the financial crisis and reaffirmed its decision to maintain the company’s current credit quality of the foreseeable future," Nestle said.

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