2nd UPDATE: Nestle 2nd Half Net Jumps; Indicates Will Keep L'Oreal
19 February 2009 - 9:58PM
Dow Jones News
Nestle SA (NESN.VX) Thursday gave a guarded outlook for 2009 -
even though it raised its dividend after reporting a
more-than-doubled net profit for the second half due to proceeds
from disposals, and indicated it will keep its large L'Oreal stake
for the time being.
The Vevey, Switzerland-based food and beverages giant said it
expects to post organic growth of "at least approaching 5%," in
2009, which would be below its long-standing annual organic growth
rate target of 5% to 6%. But the maker of Nescafe soluble coffee
and KitKat chocolate bars expects to improve operating profit
margins in constant currencies.
Net profit for the second half jumped to 12.83 billion Swiss
francs ($11 billion) from CHF5.73 billion a year ago, according to
a calculation by Dow Jones Newswires.
Bernstein Research analyst Andrew Wood said the outlook wasn't
convincing but added it is still ahead of market consensus views of
an organic growth of below 4% for 2009. He has an outperform rating
and CHF58 price target.
"Nestle could still reach its 5%-6% organic sales growth range
in 2009," food industry analyst James Amoroso said. Operating
profit will benefit from more positive situation on the commodity
cost side while currencies will put a pressure on margins, he
said.
On the Swiss bourse at 0955 GMT, Nestle shares were up 4.8%, or
CHF1.78, to CHF38.80 in a higher general market. Kepler analyst Jon
Cox reiterated a buy rating and a CHF55 price target, noting the
stock is a core holding in uncertain times.
For the full year, net profit increased 69% to 18.04 billion
Swiss francs ($15.4 billion) from CHF10.65 billion in 2007, boosted
by a $10.4 billion gain on the partial sale of eye-care company
Alcon Inc. (ACL) to Novartis AG (NOVN.VX).
Full-year sales rose 2.2% to CHF109.91 billion from CHF107.55
billion.
Organic growth, a performance yardstick comprising volume growth
and price increases, was 8.3%, on the high end of consensus
estimates of 8.2%.
Nestle remained vague on the future of its large stake of about
29% in French cosmetics company L'Oreal SA (12032.FR). It said it
will continue to take a long-term strategic view on L'Oreal, adding
it doesn't need to take "any action or decision" regarding its
stake next April.
Markets have eagerly awaited a statement on L'Oreal due to
mounting speculation Nestle may soon sell its stake.
Nestle and the other controlling L'Oreal shareholder, the French
Bettencourt family, entered a lockup agreement several years ago
but part of the contract will expire April 29. The treaty also
includes a ban on any increase in either partner's stake as long as
L'Oreal heiress Liliane Bettencourt is alive.
At a media conference, Nestle Chief Executive Officer Paul
Bulcke said the statement can be interpreted as Nestle's intention
to hold on to its L'Oreal stake.
Bernstein's Wood said the comments are "almost like interpreting
a UN resolution," adding Nestle doesn't quite say that L'Oreal is a
strategic part of the business.
Nestle is proposing to increase its dividend by around 15% to
CHF1.40 per share.
The company said it plans to spend around CHF4 billion on share
buybacks this year under a CHF25 billion scheme launched in
2007.
Chief Financial Officer James Singh said Nestle doesn't plan to
re-negotiate the terms of sale of Alcon. Nestle has the right to
sell the remaining 52% stake between January 2010 and July 2011 at
$181 per share.
A recent decline in Alcon's share price has led to speculation
the agreement may be tweaked.
Company Web site: www.nestle.com
-By Martin Gelnar, Dow Jones Newswires, +41 43 443 8042; martin.gelnar@dowjones.com