Reuters - Nestle raises outlook after strong 2008 start

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Nestle raises outlook after strong 2008 start

Thursday, Mar 13, 2008 1:48PM UTC

By Sam Cage and Thomas Atkins

ZURICH (Reuters) - Nestle <NESN.VX> surprised investors by raising its outlook on Thursday, saying the year had started strongly and it expected growth in 2008 to be similar to last year.

The world's largest food company said it had already pushed through price increases to its customers in 2007 and now stood to benefit if price pressures on commodities such as grains and sugar abate in the second half of 2008.

"We can never remember the company being this bullish so early in the year," ABN AMRO analysts said in a note.

The unexpected news from the maker of Nescafe coffee and KitKat chocolate bars added 4.3 percent to its shares, which have benefited from its expansion program into healthy foods.

Nestle shares rose to 498.50 Swiss francs by 5:58 a.m. EDT, compared with a 1.1 percent fall in the Swiss blue-chip SMI index <.SSMI>.

Nestle claims to be one of the first major food firms to have recognized food price pressures approaching. Its hedges and consumer price hikes gave it an edge over competitors like Danone <DANO.PA> and Unilever <ULVR.L>.

The company expected underlying sales to rise in 2008 at a similar rate to the 7.4 percent of last year and clearly above its long-term trend target of between 5 and 6 percent.

"The Group's organic growth is off to a very strong start in 2008," outgoing Chief Executive Peter Brabeck said in a statement.

MORE DETAILS IN APRIL

Nestle said it expected raw material cost pressures to ease somewhat during 2008, and foresaw price increases trending lower in the second half of 2008.

"The increase in the organic growth target for 2008 is a very positive sign from Nestle, which shows that a good result may be achieved even in the current climate of rising commodities prices and recessionary fears in the U.S.," said Vontobel analyst Claudia Lenz.

At its full-year results last month, Brabeck declined to commit to matching Nestle's 2007 growth rate this year.

The Vevey, Switzerland-based company -- which also makes Perrier water, Buitoni pasta and Maggi soups -- trades at about 16 times forecast 2008 earnings, according to Reuters data.

That is just ahead of British sector peer Unilever, with a multiple of 15, but behind France's Danone.

Nestle maintained a targeted improvement in its margin on earnings before interest and tax (EBIT) in 2008.

The company plans to publish first-quarter results on April 21. A spokesman declined to give details on those figures.

(Additional reporting by Pascal Schmuck; Editing by Louise Ireland and David Cowell)