Nestle Rises Most in Five Years on Profit, Buyback

Time for some good news... the only one i could find today :-)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.JNW2dgdGK0&refer=home

Aug. 15 (Bloomberg) -- Nestle SA, the world's largest food company, rose the most in five years after reporting higher-than- estimated first-half profit and announcing plans to buy back 25 billion Swiss francs ($21 billion) of stock.

Net income for the six months through June climbed 18 percent to 4.92 billion Swiss francs, or 12.6 francs a share, the Vevey, Switzerland-based company said today in a statement. That beat the 4.56 billion-franc median estimate of eight analysts surveyed by Bloomberg. Sales increased 8.4 percent to 51.1 billion francs.

Chief Executive Officer Peter Brabeck-Letmathe said full- year revenue will exceed forecasts and predicted improved margins for 2007 as the company increases prices of Dreyer's ice cream and Friskies pet food. Nestle, which has expanded its nutrition division with the purchase of two units of Novartis AG for $8 billion, said sales of health-foods rose at a record pace.

``Brabeck delivered again,'' said Joerg de Vries-Hippen, who oversees $60.3 billion, including Nestle stock, as chief investment officer for European equities at Allianz Global Investors in Frankfurt. ``I have been looking at Nestle for 15 years and I have never seen anything like this.''

Nestle shares rose 31 Swiss francs, or 6.9 percent, to 482.75 francs at 1:43 p.m. in Zurich, the biggest gain since July 25, 2002. They have added 11 percent in 2007, beating the 4.1 percent climb by Dutch stock of rival Unilever, the maker of Magnum ice-cream bars. Shares of Kraft Foods Inc., whose products include Philadelphia cream cheese, have dropped 9 percent.

Sales Forecast

The share buyback, Nestle's biggest ever, is slated to take place over three years and is enough to repurchase 14 percent of the company's shares, based on yesterday's closing price.

Costs for agricultural commodities are gaining at the quickest pace in at least a decade as Indian and Chinese demand climbs and the ethanol industry uses more grain. Nestle has raised prices of Dreyer's and other dairy products by as much as 10 percent in 2007. Higher prices will add about 2 percentage points to this year's revenue growth, the company has forecast.

``The ability to raise prices is always welcomed by investors,'' said Lucy MacDonald, who helps manage $100 billion as chief investment officer for global equities at RCM Ltd. in London. ``It's a comfortable place to be given current market turmoil.''

Sales advanced 7.4 percent excluding acquisitions, disposals and currencies in the quarter, compared with the survey's 6.9 percent estimate. The maker of KitKat snack bars expects annual revenue growth at that level ``approaching'' 7 percent, beating its forecast range of 5 percent to 6 percent for a third year, Chief Financial Officer Paul Polman said on a conference call.

Price Increases

Nestle said price increases will probably slow volume growth in the second half of this year and higher raw material costs, especially for milk, will ``heighten pressure'' on profitability through the first half of 2008.

``The second half will be somewhat more difficult'' because of the price increases, Brabeck said in an interview. He repeated the company will name his successor as CEO on Sept. 20, and he will give up that position in April.

``Nestle is clearly indicating that raw material cost pressures will be more severe in the second half of 2007 and first half of 2008,'' wrote Alex Molloy, an analyst at Credit Suisse, in a note to clients. He rates the stock ``outperform.''

Agricultural commodity prices will probably stay near current levels, Brabeck said, adding he expects a ``small decline'' in milk prices. He said there will be less need to raise prices next year as costs won't increase as fast as in past years.

Alcon Stake

The lack of acquisition opportunities is one reason for the buyback, according to Brabeck. ``I don't see now, into the future, any major acquisition,'' he said.

Polman said in June investors shouldn't expect a repurchase program every year, making today's announcement a surprise.

Standard & Poor's may cut its maximum AAA credit rating on Nestle as a result of the buyback plan because of a possible increase in debt, said Rob Orman, an analyst at Royal Bank of Scotland. Vincent Allilaire, an S&P analyst that covers Nestle, declined to comment on whether the rating will be reduced.

Polman said Nestle would ``take it in stride'' if its credit rating was cut by a level or placed under review.

The food maker's 76 percent stake in Alcon Inc., the world's largest eye-care company, is ``increasingly a financial rather than a strategic holding, and we need to assess it as such,'' Polman said on the call. Nestle will ``continuously reassess'' the stake, he added, declining to comment further. The investment is worth about $32 billion, based on yesterday's share price.

Health Foods

Earnings before interest and tax rose 14 percent to 6.92 billion francs. The maker of Quality Street candy raised its profit margin at that level to 13.5 percent from 12.9 percent.

For the full year, that margin will improve more than the 0.3 percentage point that analysts are expecting, though less than 0.6 percentage point in the first half, Polman said.

Sales of health foods rose 11 percent excluding acquisitions and currency swings. The company purchased Novartis's medical- nutrition unit for $2.5 billion last month and also agreed to buy the Swiss drugmaker's Gerber brand for $5.5 billion.

The Wall Street Journal said July 19 Nestle discussed a merger with PepsiCo Inc. this year after it was approached by the U.S. company. Nestle spokesman Francois Perroud dismissed the speculation at the time. PepsiCo CEO Indra Nooyi, who said July 25 the company may spend as much as $2 billion on acquisitions outside North America, declined to comment.