Nestlé, the world’s biggest food group, announced an 8 billion Swiss franc share buyback and stood by its full-year sales forecast yesterday, after revenue growth in emerging markets picked up in the second quarter.
Its comments came after Anglo-Dutch rival Unilever blamed a slowdown in Asia for second-quarter sales missing forecasts last month, and profits at France’s Danone were hit by weak dairy sales in Europe.
Food groups are facing tough conditions as prices in developed markets remain under pressure and demand in emerging markets has also been slowing, but Nestlé has been able to soften the blow by pouring marketing funds into its leading brands and by getting rid of underperformers.
“Nestlé is one of the very few players in the consumer goods sector not to disappoint the market in the first half, and not giving a profit warning for the full year,” Vontobel analyst Jean-Philippe Bertschy said in a research note.
The Swiss group also announced an 8 billion franc share buyback, following the sale of an 8 per cent stake in L’Oreal earlier this year. This was more than the roughly 5 billion franc repurchase expected by the market, according to Bank Vontobel analyst Jean-Philippe Bertschy.
The company said it wanted to complete the buyback by the end of 2015.
Net profit at Nestlé, whose brands range from KitKat chocolate bars to Nescafe coffee, fell about 10 per cent to 4.6 billion francs in the six months to June, short of analysts’ average estimate of 5.01 billion francs in a Reuters poll, as the strong Swiss franc and higher input costs took their toll.
Nestlé is one of several large consumer groups selling underperforming assets to free up resources for its top brands. It is also investing in its new capital-intensive business opportunities in nutrition and health science.
It has sold its Juicy Juice drinks, most of its Jenny Craig diet business and its PowerBar energy bars and said other disposals could follow. It bought injectable wrinkle treatments from Valeant Pharmaceuticals for $1.4 billion to strengthen the skin health business after it agreed to take over the Galderma joint venture with L’Oreal.
Unilever and Procter & Gamble are also unloading weak brands.