Nestle’s Profit Declines for First Time in 6 Years

Nestle’s Profit Declines for First Time in 6 Years

Aug. 12 (Bloomberg) -- Nestle SA, the world’s largest food company, reported its first profit decline in six years after reducing a stake in eye-care company Alcon Inc. and selling less Perrier bottled water.

First-half net income dropped 2.8 percent to 5.07 billion Swiss francs ($4.7 billion) from 5.21 billion francs a year earlier, the Vevey, Switzerland-based maker of Dolce Gusto coffee and Nesquik chocolate milk said on its Web site today.

The company said second-half sales growth will accelerate, though Nestle’s press release didn’t repeat previous forecasts that 2009 sales growth will at least approach its long-range target of 5 percent to 6 percent. Revenue from bottled water, criticized by environmentalists for creating waste, shrank for a second consecutive half. It’s been one of Nestle’s hardest-hit divisions as consumers and companies spend less.

“Major parts of the company’s strategy,” such as water, premium-priced products, restaurant services and baby food, “have been going through a difficult time of late,” wrote Andreas von Arx, an analyst at Helvea, before the results were released. “It still remains unclear at the current stage whether these strategic pillars will again be the route to success for food companies in the medium term.”

Nestle gets about a 10th of its sales from the water unit. Net income beat the 4.82 billion-franc average estimate of 10 analysts surveyed by Bloomberg, though sales by two measures were below estimates.

Sales Miss Estimates

Revenue fell 1.5 percent to 52.3 billion francs, Nestle said, compared with analysts’ 52.6 billion-franc estimate. Sales excluding acquisitions, divestments and currency effects rose 3.5 percent, missing the 3.8 percent average of eight analysts’ estimates.

First-quarter growth on that basis was 3.8 percent, below the long-term 5 percent to 6 percent per year target. In February, Chief Executive Officer Paul Bulcke said the food company aimed for full-year organic growth to at least approach the target.

Analysts expect 4 percent growth for 2009, according to the median of five estimates gathered before today’s results. That would end the company’s four-year streak of beating its target.

Today, Nestle also said that its second-half organic sales growth will accelerate. Growth of 4 percent for the year would outpace the company’s nearest rival, Oreo cookie maker Kraft Foods Inc., which last week forecast full-year organic sales growth of about 4 percent.

Nestle shares have fallen about 11 percent in the past 12 months, while Kraft shares have dropped 13 percent.

Nestle cut its stake in Alcon, the maker of Opti-Free contact lens solutions, to 52 percent from 77 percent for $10.4 billion in July of last year, affecting the comparison of today’s report to figures released a year earlier.

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