2nd UPDATE: Nestle Upgrades Dividend, Sets Buyback; Outlook Vague
February 19 2010 - 6:53AM
Dow Jones News
Signalling confidence, Switzerland's Nestle S.A. (NESN.VX)
Friday raised its dividend and detailed a new share buyback program
as sales growth improved towards the end of 2009, even though
profits fell sharply because the previous year's result had been
inflated by proceeds from asset sales.
However, the world's largest food and beverages producer
declined to give a specific growth outlook for this year, instead
reiterating its long-term target for a sales growth rate of between
5% and 6% excluding foreign exchange fluctuations and changes in
its portfolio.
It said it would counter an expected 2% to 3% rise in commodity
costs this year by raising prices, improving efficiency and
changing some products.
Analysts had expected the company to give a more detailed
outlook for this year, which is expected to be characterized by the
input cost rises and a continued difficult consumer
environment.
However, Bernstein Research analyst Andrew Wood said the
company's prudent stance for 2010 provides Nestle with the
opportunity over-deliver on its forecasts. Wood expects organic
growth to stand at 5.3%.
Nestle, which earlier this year bought Kraft Foods Inc's (KFT)
frozen pizza business, a consequence of the U.S. rival's pursuit of
Cadbury, said net profit fell to 10.42 billion Swiss francs ($9.56
billion) in 2009, compared with CHF18.04 billion in 2008. The
previous year's figure was inflated by CHF9.2 billion in proceeds
from the sale of the first tranche of U.S. eye care-company Alcon
Inc. (ACL) to Novartis AG (NVS).
Sales declined 2.1% to CHF107.62 billion from CHF109.91
billion.
However, the figures beat analysts' expectations and the company
said it plans to raise its 2009 dividend to CHF1.60, from
CHF1.40.
Nestle also said it would complete its current CHF25 billion
share buyback in the course of this year, and would then start a
new CHF10 billion buyback program. It expects to have completed
half of the new program this year.
Analysts had speculated about Nestle's plans for its large cash
pile following its announcement in January that it will sell the
remainder of Alcon to Novartis.
"Maybe with this strong result, the market can start to focus on
what a solid business Nestle is rather than on buybacks," said
Kepler analyst Jon Cox, who has a buy rating and a CHF56 price
target on the stock.
On the Swiss bourse at 1110 GMT, Nestle shares were up 2.6%, or
CHF1.35, at CHF52.80 in an overall slightly higher general
market.
Nestle didn't give any quarterly figures.
Bernstein's Wood, who has an outperform rating and a CHF60 price
target on the stock, said a strong performance in the second half
of 2009 bodes well for 2010.
Nestle's organic growth, which measures changes in selling
prices and volumes but excludes the impact of currency moves, was
4.1% for the whole of 2009, an improvement on third quarter growth
of 3.8% and 3.5% during the first half of the year.
Nestle said it wants to increase organic growth in its food and
beverages business this year, but didn't provide a specific target.
It also reiterated its usual guidance for an improved operating
profit margin in constant currencies.
-By Martin Gelnar, Dow Jones Newswires, +41 43 443 8042;
martin.gelnar@dowjones.com
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