Nestlé outshines peers, expects stronger 2010

Nestlé, the world's biggest food group, expects higher sales growth this year after beating 2009 forecasts through strong growth in North America and developing markets and lower prices for milk and other commodities.

The maker of Nescafé coffee, Gerber baby food and Perrier water topped estimates with 4.1 per cent growth in underlying sales last year, ahead of rivals Unilever and Danone and a forecast of 3.9 per cent. Nestlé, which has seen roaring demand for its Nespresso coffee brand, now expects higher growth in 2010 from its core food and beverage business compared to 3.9 per cent growth in 2009 as it focuses on food after selling off Alcon eyecare.

"For 2010, I expect our food and beverage business to achieve higher organic growth than in 2009 and a further EBIT (operating) margin increase in constant currencies," said chief executive Paul Bulcke in a results statement.

"After a slower start to 2009, Nestlé's operating performance picked up steam in H2 which certainly bodes well for H1 2010," said analyst Andrew Wood at Sanford Bernstein.

The Swiss group was boosted by strong growth from its coffees like Dolce Gusto and Green Blend and pet foods such as Friskies and Purina, while seeing strong growth across developing markets in Latin America, Asia and Africa.

Mr Bulcke reaffirmed his commitment to five to six per cent underlying growth over the long-term and added the group would pay a 2009 dividend of 1.6 Swiss francs per share, up 14.3 per cent.

Group net profit was 10.4 billion Swiss francs in 2009, ahead of forecasts for 10.3 billion. In 2008 an 18 billion francs result included 9.2 billion francs from selling 25 per cent of its stake in eyecare company Alcon to Swiss pharmaceutical giant Novartis.

Nestlé's divestment of the rest of Alcon, a $28 billion deal last month, will be recorded in its 2010 accounts. Analysts said Nestlé is weathering a tough consumer market in the United States and other developed economies better than its peers, which have warned of continuing difficulty.

"Nestlé shares remain high up on the shopping list," Bank Wegelin said in a note to clients after the 2009 results, which it said "seem particularly pleasing given the persisting economic crisis".

Nestlé shares trade at 15 times forecast 2011 earnings, compared with European rivals Danone on 14 and Unilever on 13, while US-based Kraft was on 12.