Nestle H1 net up 11% to $3.4bn

ZURICH: Nestle, the world’s largest food company, reported an 11.4% rise in first-half net profit as hedging efforts and price increases offset higher input and energy costs, boosting profitability.

The maker of Nescafe coffee and Smarties chocolates posted on Wednesday a net profit of 4.2 bn Swiss francs ($3.4bn) in the first six months of ‘06, meeting expectations, and sending the company’s shares higher.

Swiss-based Nestle also said it expected full-year organic sales growth to hit the higher end of its target range and that it would continue to improve profitability and pass on higher costs to customers. Despite higher prices for commodities such as coffee, sugar and oil, Nestle boosted its earnings before interest and tax (EBIT) margin, a key profitability yardstick, by 40 basis points to 12.8% in the first half. The figure topped most analysts’ expectations.

Nestle said it had limited the impact of higher raw material costs through hedging and efficiency programmes and economies of scale. Nestle, which also bottles Perrier water, raised its prices by 1.6% in the first six months, while a stronger US dollar also helped boost earnings.

Revenue at the firm rose 11% to 47.138bn, resulting in organic sales growth of 6.4%, above the group’s own target.

Nestle said full-year organic growth, which measures volume and price changes but strips out currency effects along with divestments and acquisitions, would come in at the high end of its 5-6% range.

Nestle also confirmed its target of a higher margin in ‘06 in constant currencies.

Nestle shares trade at around 16 times estimated ’07 earnings, which is at a discount to rival Danone shares, which trade at a multiple of almost 20. Danone’s valuation has been supported by speculation that it could be bought.

The results met expectations in a Reuters poll of 19 analysts whose average net profit forecast was 4.12bn francs.