Nestle raises forecasts for organic sales growth this year despite posting 13% drop in sales over first nine months due to strong Swiss franc, loss of earnings stemming from disposal of eyecare company Alcon

Nevin Barich

GENEVA , October 20, 2011 (Associated Press) – Food and drink giant Nestle SA has modestly raised its forecasts for organic sales growth this year despite posting a 13 percent drop in sales over the first nine months due to the strong Swiss franc and loss of earnings stemming from the disposal of eyecare company Alcon.

The Vevey, Switzerland-based company said Thursday it had sales of 60.9 billion francs ($67.84 billion) through September, down from 70.4 billion francs ($78.42 billion) during the same period in 2010.

The maker of Nescafe, Jenny Craig and Haagen-Dazs said the results were affected by a sharp rise in the value of the franc and the disposal of its stake in Alcon. Nestle sold its stake in the firm to pharmaceutical company Novartis last year for a net profit of some $45 billion.

Nestle shares were down 1 percent at 51.05 francs ($56.43) on the Zurich exchange.

Discounting the currency and disposal effects, Nestle raised its long-term organic growth outlook based on what it called strong organic growth of 7.3 percent. That included 13.1 percent organic growth in emerging markets and 4 percent in developed markets.

Chief executive Paul Bulcke said the company now expects to do slightly better than its long-term organic growth range target of 5-6 percent, and is focused on developing products that can build market share.

"In spite of raw materials and financial markets, we hope to slightly outperform our organic growth target," said Bulcke, speaking from Paris since France is Nestle's second-biggest market, behind the United States.

Chief financial officer Jim Singh conceded that the strength of the Swiss franc was weighing on earnings but he insisted that Nestle "maintained a solid growth momentum" with more than 60 percent of Nestle's brands gaining market share around the world.

A more detailed look at the nine-month figures show that Nestle saw sales fall across all areas and product groups compared with a year ago.

In North America, the company's biggest market, Nestle said tough economic conditions and higher pricing weighed on demand, but new lines like DiGiorno Pizza Combos, Lean Cuisine snacks, and Dreyer's Smoothies helped compensate.

PetCare and frozen pizza saw accelerated growth and market share gains, the company said, and Coffee-mate had strong growth due to new varieties of Cafe Collections and the launch of Coffee-mate Natural Bliss. It said Nescafe also performed well.

In Europe, Nestle said its rollout of Nescafe Dolce Gusto and Maggi Juicy Roasting helped make up for the tough environment. It said France was a particular highlight but there was also good growth in Italy, Switzerland and the Benelux countries. And despite the economic crisis, Greece, Spain and Portugal did well too.

In August, the company posted a drop in half-year earnings, blaming volatile markets, rising commodity prices and particularly the strength of the Swiss franc for dragging down profits.

Analysts at Zuercher Kantonalbank said Thursday's results met their predictions and particularly welcomed the stronger-than-expected 12.6 percent sales growth at Nestle's coffee and chocolate drinks unit.

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