Nestle confirms outlook

Nestle managed to raise prices by more than expected in the first quarter, helping the world's largest food group defy high raw-material costs and achieve underlying sales in line with market expectations. "Our satisfactory first-quarter growth is in line with our expectations," Chief Executive and new Chairman Peter Brabeck said in a statement on Monday. "It allows me to confirm our full-year organic growth target of between 5 and 6 percent."
The maker of Nescafe coffee and KitKat chocolate wafers said first-quarter organic, or underlying, sales grew 4.6 percent, exactly in line with the average forecast by 13 analysts in a Reuters poll but missing Nestle's target for the year, as it had in 2004.
Nestle has an annual 5-6 percent target on underlying sales growth - which measures volume and price changes, stripping out the effect of currencies and divestments and acquisitions - and is focusing on improving profits this year.
Total sales at came in virtually flat at 20.5 billion Swiss francs ($17.32 billion) in the quarter.
Nestle, which also produces breakfast cereals, bottled water and baby foods, said raw-material prices had continued to rise in the first quarter but that it had passed this on to customers by upping prices by 2.0 percent, above expectations.
The 2.0 percent price increase meant real internal growth (RIG), which measures sales growth by volume, was lower than expected at 2.6 percent, but analysts were still pleased with the sales figures.
"Even if RIG disappointed slightly, the price effect shows that higher raw material prices can be passed on," Vontobel analyst Rene Weber said. High prices for raw materials such as milk, coffee, cocoa and sugar, coupled with an increase in oil prices that has made packaging more expensive, have hit the food industry.
But Nestle says it expects that prices have now peaked and will eventually ease towards the second half of the year. Yet, it said it will react if raw material prices were to spike now.
"There will be more pricing to come in those areas where we are seeing particular spikes in the commodities prices. I am thinking there in particular of coffee and perhaps cocoa," Investor Relations head Roddy Child-Villiers said, adding that Nestle was reviewing its hedging policies in the area.