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Nestle Q1 sales take forex hit

Nestle, the world's biggest food group, reported first-quarter sales down 2.1% as a strong Swiss franc and a late Easter weighed, but said strong brands should help it meet its full-year target.

Nestle said steps to respond to the economic crisis such as promoting cheaper products and cutting costs as well as its strong brands and global reach meant it still expected 2009 organic sales growth of “at least approaching 5%.”

“The confirmed outlook and good organic growth in Q1 is positive,” said DZ Bank analyst Robert Czerwensky.

Organic sales growth, which strips out currency effects and acquisitions, was 3.8% in the first quarter.

Total sales slipped 2.1% to 25.2 billion Swiss francs ($21.5 billion) from 25.7 billion a year ago as the strong Swiss currency had a negative impact of 5.2%.

A Reuters poll of 11 analysts had on average forecast on total sales rising 1.2% to 26 billion Swiss francs and a 3.7% rise in underlying or organic sales.

Chief Executive Paul Bulcke noted the 3.8% underlying growth figure was measured against tough comparisons with a near 10% rise in the year-ago quarter.

“We consider first-quarter organic growth of 3.8% a good achievement in light of the weak environment and very high comparison base,” said Vontobel analyst Claudia Lenz.

Analysts have said the maker of Nescafe coffee, KitKat chocolate bars and Maggi soup was well positioned to ride out the recession compared to its rivals due to its comprehensive range of products and wide geographical presence.

French food group Danone last week stuck to its 2009 earnings growth targets after demand for its baby food and medical nutrition products helped lift first-quarter like-for-like sales by 1%.

Roddy Child-Villiers, Nestle head of investor relations, said the later 2009 Easter, which fell in the first quarter last year and in the second this year, had hit ice cream sales in Europe and chocolate sales in Brazil, its biggest chocolate market.

Independent analyst James Amoroso said some investors might be concerned about weaker-than-expected volume growth of 0.3% in the quarter, but said that was largely due to a tough comparison with last year and the late Easter.

“The diversity of Nestle's portfolio ... at the levels of regions, categories and (distribution) channels means that it can retain its consumers wherever they go and however their consumption behavior changes,” he said.

All business units recorded positive organic growth in the quarter apart from the bottled water division, where sales fell 2.5%, which Nestle said was due to ongoing weakness, particularly in western Europe.

Child-Villiers said the fall was more due to the economic slowdown than to environmental concerns about bottled water and said he did not expect an improvement in the business this year.

Nestle Nutrition recorded flat organic sales due to weak growth in the European baby formula business and for the US Jenny Craig diet food range. Child-Villiers said Nestle expects both businesses to pick up during 2009.

Shares in Nestle are trading at about 12 times 2010 earnings, at a slight discount to Cadbury on 12.5 but at a premium to about 11.4 for Danone and 10.3 for Anglo-Dutch Unilever Plc/NV.

In its statement, Nestle did not mention its plans for its stake in the world's biggest cosmetics company L'Oreal after a shareholder pact expires on April 29.

Both Nestle and France's Bettencourt family own roughly 30% stakes in L'Oreal and speculation has been rife over whether Nestle might seek a full takeover or consider selling its stake when the shareholder pact expires.

Earlier this month, Nestle and the Bettencourt family said they would continue to work together even after April 29. (Reuters)