Nestle and Sara Lee profits lifted by price increases

CHICAGO: Nestle , the world's largest food company, reported a first-half profit at the top of analysts expectations, aided by price increases that offset rising commodity costs.
A similar strategy also helped U.S. foodmaker Sara Lee post a higher-than-expected profit on Thursday as it raised prices to offset soaring costs for items such as wheat and energy. Sara Lee also forecast profit for the current fiscal year that is higher than some analysts' estimates.
But investors are concerned that, as price increases for well-known brands such as Nescafe coffee are pushed through to the supermarket shelf, more consumers will look to lower- priced items. Reliance on price increases has already pressured the volume of products sold by some companies.
"We believe it would be premature to call this a turning point for the company," JPMorgan analyst Terry Bivens wrote in a note to clients on Sara Lee.
"Going forward, the company will face competitive pressures, pricing elasticity and tougher comps. All of these factors may blunt its volume growth."
Sara Lee shares fell 3.7 percent on the New York Stock Exchange, adding to a nearly 10 percent drop to date in 2008. Nestle shares rose 0.1 percent on the Swiss stock market after trading lower earlier and are down 9.3 percent for the year.Sales volume growth in the first half of the year at Nestle slowed to 3.5 percent from the first-quarter's rate of 4.5 percent.
European foodmakers such as Nestle and Unilever have seen their stocks pressured because of concerns that price increases had gone too far. In contrast, U.S. food companies have in general seen their shares rise in recent weeks as a similar strategy, and cost cuts, succeeded in offsetting commodity costs.
MARKETING DIFFERENCES
U.S. food companies also have been aggressively increasing spending on advertising to boost sales.
But Nestle's marketing and administration spending as a percent of sales declined in the first half of the year.
"Marketing spending was down 120 basis points -- a bigger decline than Unilever's 70 basis points fall, which sent its shares down 10 percent, and this may well be taken negatively for Nestle as some investors may take the view that marketing is being used to make the margin numbers," RBS analyst Julian Hardwick said.
Nestle said net profit rose to 5.2 billion Swiss francs (2.51 billion pounds) in the first six months of 2008, slightly ahead of average analyst expectations of 5.05 billion Swiss francs and at the top of a 4.88 billion to 5.21 billion range.
Underlying sales, which exclude currency effects and acquisitions, rose 8.9 percent, in line with forecasts. But pricing accounted for a higher-than-expected 5.4 percentage points.The maker of Buitoni pasta, Nespresso coffee and Friskies cat food gave a slightly more upbeat forecast, expecting underlying growth in 2008 at least at the 2007 level of 7.4 percent, after previously saying it would "approach" that figure.
Nestle repeated it expects improved earnings before interest and tax (EBIT) margins in 2008.
UNCOMMON CURRENCY
Unlike Nestle, Sara Lee benefited from a weak dollar, as did other U.S. foodmakers with operations outside the United States. Nestle profits were depressed by the strong Swiss franc.
The maker of Sara Lee bread, Ball Park hot dogs and Jimmy Dean sausage posted a fiscal fourth-quarter loss of $695 million, or 98 cents a share, as a result of previously disclosed charges reflecting the reduced value of some bakery operations.
Before one-time items, it earned 28 cents a share, compared with the average analyst estimate of 25 cents a share. Sales from continuing operations rose 12 percent to $3.51 billion.
For fiscal 2009, the company forecast earnings of 90 cents to 98 cents a share, excluding a contingency payment from the 1999 sale of is tobacco business, or $1.12 to $1.20 a share including the payment.Analysts on average forecast $1.03 a share, according to Reuters Estimates, although some include the tobacco payment and some do not. Sara lee said the average estimate of analysts that do not include the payment was 92 cents a share.
http://www.iht.com/articles/reuters/2008/08/07/business/OUKBS-UK-NESTLE-SARALEE.php






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