Nestle SA (NESN), the world’s largest food company, plans to spend 8 billion Swiss francs ($8.8 billion) in its first share buyback in three years after reporting first-half revenue growth that exceeded analysts’ estimates.
Revenue gained 4.7 percent excluding acquisitions, divestments and currency shifts, the Vevey, Switzerland-based maker of KitKat bars and Nespresso coffee said today in a statement. That compares with the 4.5 percent median of 14 analysts’ estimates compiled by Bloomberg News. Nestle said it plans to repurchase the stock starting this year and into 2015. The shares rose as much as 3.1 percent.
Nestle has outperformed its main European rivals Unilever and Danone in the first half and is increasing its distance on them with its plan to return cash
to shareholders through repurchases. Unilever, the maker of Magnum ice cream and Lipton tea, and French yogurt maker Danone last month reported revenue that missed estimates. Nestle said today the sale of part of its stake in French cosmetics company L’Oreal will boost second-half profit by 7.4 billion francs ($8.2 billion).
“The 8 billion-franc buyback has to be put in the context of M&A activities,” Jean-Philippe Bertschy, an analyst at Bank Vontobel, wrote in an e-mail. “Nestle would have the ability to do a bigger buyback of 10 billion francs to as much as 20 billion francs.”
Paul Bulcke, chief executive officer of Nestle SA.
Returning Cash
The company is returning cash to shareholders after selling part of its stake in L’Oreal back to the French cosmetics maker for 6 billion euros ($8 billion). In 2011, the company completed a 10 billion-franc buyback that it began in 2010.“We’ve had a few disappointments in the food industry lately, but Nestle has managed to report numbers that are slightly better than expected, doing better than Danone and Unilever,” Patrik Lang, an analyst at Julius Baer Group Ltd. in Zurich, said by phone. “The quality of the numbers is good. Investors will react positively to the results, but the stock is quite expensive.”
The DiGiorno pizza maker has been revamping its portfolio to revive sales growth, which reached a four-year low in 2013. Chief Executive Officer Paul Bulcke spent more than $5 billion this year to build the dermatology business, buying out the rest of its Galderma joint venture and rights to drugs from Valeant Pharmaceuticals International Inc.
Trading operating profit declined 5.4 percent to 6.44 billion francs, held back by the strength of the Swiss currency. Analysts had estimated 6.53 billion francs. The weakness of currencies against the franc reduced the trading operating margin by 0.4 percentage point. Organic sales growth in the Asia, Oceania and Africa zone was 4.7 percent, compared with analysts’ estimates for a 5.7 percent gain.
Keeps Forecasts
The maker of Perrier bottled water and Coffee-Mate creamer reiterated its outlook for 2014, saying revenue will rise about 5 percent on an organic basis. The average increase over the past decade has been 6.1 percent. The company also has said it expects an improvement in full-year margins and underlying earnings per share, excluding currency shifts.Frozen food and ice cream in North America “continue to be challenged,” Nestle said. Global sales growth of prepared dishes and cooking aids such as Maggi bouillon was unchanged in the first half.
Slowing Food
Food companies are struggling to boost growth as health-conscious consumers increasingly shun processed, packaged foods. Sanford C. Bernstein cited soda, sweet snacks and frozen food as three of the biggest health concerns for moms in the U.S. in a 2013 survey on food.Mondelez International Inc. (MDLZ), the maker of Oreo cookies and Ritz crackers, reduced its full-year sales forecast yesterday, now expecting revenue excluding acquisitions, divestments and currency shifts to rise 2 percent to 2.5 percent. Kellogg Co., the maker of Corn Flakes and Pop-Tarts, has also lowered its 2014 forecasts. Unilever, the maker of Magnum ice cream and Lipton tea, said July 24 that the volume of food sold in the second quarter was little changed.
Nestle sold Juicy Juice to Brynwood Partners LP last month as the Nescafe maker trims slow-growing food and beverage brands. The company has also divested PowerBar snacks, Joseph’s Gourmet Pasta and most of its Jenny Craig diet-center business over the past year.
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