Nestlé in $21bn share buy-back as profits soar
The world's largest food company, Nestlé, reported higher-than-expected profits yesterday, prompting the largest single-day share price rise for five years. The company promised to buy back $21bn (£10bn) of its own stock over the next three years, rather than using spare cash to finance acquisitions.
Net income for the group climbed 18 per cent to SFr4.9bn in the first half of the year, considerably ahead of analysts' expectations, with sales up 8.4 per cent. The chief executive, Peter Brabeck-Letmathe, said he expected " further sustainable improvements" for the rest of the year.
One European analyst said: "Brabeck has delivered again. After looking at Nestlé for 15 years, I have never seen anything like this."
Nestlé shares rose SFr27.75, or 6.1 per cent, to close yesterday at Sfr479.5 on the Zurich Stock Exchange.
While the Swiss conglomerate has been on the takeover trail this year, acquiring two units of Novartis for $8bn, Mr Brabeck-Letmathe said it was "time to consolidate, and we do not see any major takeovers coming up".
The comments follow speculation that as the producer of KitKat, Nestlé might bid for the chocolate producer Godiva, which was put up for sale last week by Campbell Soup.
Nestlé said the main drivers for growth were the group's core divisions, especially the food and beverage businesses, as well as seeing strong profitability from the newer health foods and pet food divisions.
With increased demand from Chinese and Indian consumers, agricultural commodity prices have risen by more than 10 per cent this year alone. Nestlé has responded with consistent price rises, which have maintained profits but does not seem to have deterred consumers. Even so, the firm warned yesterday that price increases will probably slow volume growth in the second half of the year and "heighten pressure" on profitability.