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Nestle posts 2.7 pct fall in H1 net profit

Nestle SA, the world's biggest food and drink maker, reported Wednesday a 2.7 percent fall in first-half net profit as the recession hurt consumer demand and divestments and a stronger Swiss franc weighed on sales.
/ Source: The Associated Press

Nestle SA, the world's biggest food and drink maker, reported Wednesday a 2.7 percent fall in first-half net profit as the recession hurt consumer demand and divestments and a stronger Swiss franc weighed on sales.

The maker of popular brands such as Nescafe, Perrier, Jenny Craig and Haagen Dazs said it earned 5.1 billion Swiss francs ($4.7 billion) in the first six months of the year, down slightly from 5.2 billion francs in the same period last year.

The result bettered market expectations, although some analysts noted the company had dropped its full-year growth target. Shares fell 4 percent to close at 42.36 francs ($39.10) on the Zurich exchange.

Chief Executive Paul Bulcke said he was pleased that Nestle "delivered a combination of growth and increased profitability in the first half of the year, and this in a very challenging business environment."

Nestle reports sales each quarter, but earnings only on the half-year and full-year.

The Swiss company said sales through June fell 1.5 percent to 52.3 billion francs.

Food and beverages sales fell by 2.0 percent to 48.3 billion francs. Sales stagnated in the Americas, its biggest market, but fell 7.5 percent in Asia and Africa and 21.6 percent in Europe.

Nestle's bottled water was the big loser as sales fell 4.7 percent on lower demand in Western Europe and North America.

The company's nutrition unit also reported a 3.5 percent decline in sales, even if its infant nutrition business showed some signs of gaining momentum in Europe and the United States. It said its cereals business and Nespresso coffee continued to perform well.

Nestle said the strength of the Swiss franc against other currencies brought overall sales down 4.3 percent from what they otherwise would have been.

Bulcke said the company's 3.5 percent organic growth would likely improve in the second half of the year, adding that Nestle "remains committed to its strategic direction focused on sustainable, long-term profitable growth and is well placed to capture opportunities as economic conditions improve."

Nestle's long-term health is naturally tied to global economic recovery. A longer period of recession will lead customers to move away from its luxury brands, and analysts question the company's ability to find a "growth recovery story" by restructuring or shifting focus.

Andrew Wood, an analyst at Sanford C. Bernstein, said Nestle's overall performance was mixed. He said the nutrition unit showed some life after a very weak start of the year, but noted that there was no restatement of the company's earlier guidance of full-year organic growth nearing 5 percent.

Earnings per shares rose 3.5 percent to 1.46 francs, up 8.6 percent in constant currencies.

The Vevey, Switzerland-based company said its cash flow had significantly increased to 6.4 billion francs, compared with 3.5 billion francs a year ago. It credited improved capital efficiency for the jump, and said net debt was 17.4 billion francs, down from 25.8 billion francs at the end of June 2008.

Nestle completed the first stage of a 25 billion franc share buyback program last month, amounting to 60 percent of the program's total value. The second stage will start Thursday and the program will be finished by the end of next year, it said.