Nestle boosted by emerging markets and price hikes

Nestle, the world's largest food group, said strong emerging market growth and price rises helped to drive better than expected first-quarter underlying sales growth despite a sharp rise in commodity costs.

The Swiss-based giant is, along with other food groups, grappling with soaring costs for inputs such as coffee, cocoa, milk, grain and crude oil and is offsetting the impact by passing the cost onto consumers and by cost savings.

Underlying sales, which strip out exchange rates and acquisitions, rose 6.4% in the quarter, beating a 5.7% forecast in a poll, while Nestle confirmed its 2011 goals for sales growth of 5-6% and higher margins.

"Our strong momentum, both in organic growth and our drive for improved efficiency and effectiveness, enables us to confirm our full-year guidance," it said in a statement on Friday.

Input costs are expected to be at the top of its previous range to see a rise 8-10% in 2011, and pricing for its products should tick up during the year, said the maker of KitKat chocolate bars and Nespresso portioned coffee.

"A very strong set of figures driven by emerging markets but also a solid performance in the developed markets. I expect the stock to continue to react positively," said Kepler Capital Market analyst Jon Cox.

Traders said Nestle shares were indicated to open around 0.4 percent higher.

On Thursday, French food group Danone stuck to its full-year goals despite rising commodity costs and tough economic conditions, after price hikes fuelled stronger-than-expected first-quarter sales.

Nestle's overall sales in Swiss francs fell 1.2% to 20.3 billion francs, in line with the forecast in a Reuters poll, as the strong currency, which hit fresh highs against the dollar recently, chopped 9.8% off reported numbers.

"When looking at regional growth highlights, an improvement in Europe is worthy of mention. North America continues on the path of slow recovery while emerging markets are a key driver," said Bryan Garnier analyst Deborah Aitken.

Nestle raised prices for its products -- ranging from Maggi soups to Gerber babyfood -- by 1.5% while analysts in a Reuters poll were looking for a 2.3% hike.

The group did not comment on a potential new share buyback. It has said it wants to conclude its current 10 billion Swiss franc buyback in the first half of 2011 before making a devision on any further buyback programme.

"I was looking for the announcement of a new buyback, so this is slightly disappointing," said Vontobel analyst Jean-Philippe Bertschy.

Nestle changed its accounting standards at the beginning of the year to allow for an easier peer comparison and greater transparency.

It published a restated first-quarter 2010 sales figure of 20.5 billion Swiss francs, which no longer includes discounts and promotions, versus 26.3 billion francs initially reported.

Nestle shares, which have lost around 4% so far this year, trade at about 14 times estimated 2012 earnings, in line with Danone but at a premium to Unilever at about 13 times.