Pet-Care Sales Feed Nestlé Growth -- 2nd Update

By Saabira Chaudhuri 

Nestlé SA reported higher first-half sales, buoyed by strong growth in the U.S., where pet owners drove up sales of the food giant's Purina brand.

The owner of brands including KitKat chocolate bars and Nescafe coffee said Friday that all its categories globally boosted sales, with petcare, coffee and infant nutrition the biggest contributors.

Nestlé's first-half net profit dropped 15% to 5 billion Swiss francs ($5.05 billion), largely because its year-earlier figure was boosted by the sale of its U.S. confectionery arm. Stripping out one-time items, profit increased 10%.

Sales in the first half totaled 45.47 billion francs, up 3.6% on an organic basis, which strips out the effects of currency fluctuations, acquisitions and divestments. That was in line with analyst estimates.

When Chief Executive Mark Schneider took over in 2017, Nestle was under pressure from investors to improve performance after missing its own sales targets for a number of years. Since then, Nestlé has faced added pressure to improve its financial performance from U.S. activist investor Daniel Loeb, who in 2017 disclosed that his fund, Third Point LLC, owned about 1.25% of Nestlé and pressed the company to sell its stake in L'Oréal SA.

Mr. Schneider has, so far, resisted those calls, but made other changes including selling slower-growth, nonfood assets and placing greater emphasis on nutrition, pet food, coffee and water. In May, the company said it had struck a deal to sell its skin-health unit for 10.2 billion Swiss francs and on Friday it said a review of its charcuterie business will likely finish late this year. The company has also made a string of acquisitions including splashing out $7 billion last summer to buy the rights to sell Starbucks Corp.'s coffee and tea in grocery and retail stores.

On Friday, Mr. Schneider said the efforts to sharpen Nestlé's focus on high-growth businesses are paying off, with the U.S. -- Nestlé's largest market -- performing "particularly well."

Its second-quarter organic sales growth in North America was the strongest in eight years, according to Nestlé, driven by petcare, where e-commerce and sales of pricey products like Tidy Cats Litter and Purina Pro Plan did well. Pet owners also bought up veterinary products, including new ones like a probiotic supplement for dogs.

Petcare is a growing business, with Nestlé rivals JAB Ltd. and Mars Inc. also making strides in the sector. As more people buy fancier, organic food for themselves, they are doing the same for their pets. Consumers also are seeking more varied medical care for their pets such as cancer treatments for their cats and reconstructive surgeries on their dogs' knees.

The company said its Starbucks products are selling strongly in the U.S. and the beverages arm -- which includes Starbucks and Nescafe -- saw high single-digit growth.

Nestlé plans to roll out Starbucks lines in grocery stores in more countries and launch new products, according to Mr. Schneider. Earlier this week, Nestlé launched refrigerated creamers under the Starbucks brand in the U.S. in flavors like cinnamon dolce latte.

Nestlé's water business was a laggard, with volumes dropping 3.3%, hurt by price rises in the U.S. and slower growth in Europe. Nestlé blamed higher costs for packaging and distribution for the former and bad weather for the latter.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

July 26, 2019 06:07 ET (10:07 GMT)

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