Nestle SA, the world's biggest food and drink company, reported an 11 percent rise in first-half net profit Wednesday thanks to cost cutting and internal growth and despite higher raw material prices.
The company, which makes brands such as Nescafe, Perrier and Dreyer's, said net profit increased to 4.15 billion Swiss francs ($3.38 billion) from 3.73 billion francs in 2005, exceeding analyst expectations of about 4.09 billion francs ($3.33 billion).
Nestle, which does not report quarterly earnings figures, said slow demand in Europe was widely offset by a strong performance in emerging markets and the United States.
During the first half of 2006, the group delivered excellent levels of growth and profit margin, said Chairman and Chief Executive Peter Brabeck-Letmathe. This was made possible by the strong performance of our food, beverage and nutrition business which generated 6 percent organic growth.
Organic growth is one of the company's main performance yardsticks. This measure, which includes price increases but not the effects of acquisitions, rose to 6.4 percent, compared with 5.6 percent in the first half of 2005. Analysts had expected 6.3 percent.
Nestle shares gained 1.6 percent to 415 francs ($337.70) on the Zurich stock exchange.
It's the first time in the past few quarters Nestle has clearly surpassed consensus estimates in terms of organic growth and operating margin, Zuercher Kantonalbank analyst Patrik Schwendimann said.
The company reiterated its aim to improve operating profit margin for the full year at constant currencies. It slightly upgraded its organic growth estimate for the full year, saying it now expects that figure to be on the higher end of its long-standing 5 percent to 6 percent target range.
Sales grew 11 percent to 47.14 billion francs ($38.36 billion) from 42.47 billion francs, the company said. Analysts had expected 47.05 billion francs ($38.23 billion).
Earnings before interest and taxes rose 14.5 percent to 6.05 billion francs ($4.92 billion) from 5.29 billion francs.
The company is considering another share buyback after the current 3 billion franc program ($2.44 billion), which is almost finished, Chief Financial Officer Paul Polman said in a conference call.
If nothing extraordinary happens, there is no reason why we couldn't continue with buybacks, he said.
Polman said it will take time to get baby milk sales in China back to the previous level after the collapse that followed Nestle's recall last year because the product exceeded government limits on iodine content.