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Nestle’s $2B Profit in First Half a Dip

August 20, 2003

VEVEY, Switzerland (AP) _ Nestle, the world’s largest food and drink company, reported a steep decline in first-half net profits Wednesday, largely because of the year-earlier spinoff of its eye-care unit Alcon Inc.

Profits for the January to June period totaled 2.78 billion Swiss francs ($2 billion) compared with a profit of 5.65 billion francs for the same period last year, which was inflated by a one-time gain on the partial floating of Alcon in March 2002.

Sales for the first six months of the year fell 6.3 percent to 41.44 billion francs ($29.85 billion) at the owner of Stouffers prepared meals, Taster’s Choice coffee, Perrier water and Carnation powdered milk. That compared with 44.21 billion francs in the first half of 2002.

Operating profit fell 4.5 percent to 5.04 billion francs ($3.63 billion). That translates into an operating margin of 12.2 percent, up from the 11.9 percent reported in the first half a year ago.

``I’m confident that we can beat the operating margin of 2002 this year,″ chief executive Peter Brabeck told Dow Jones Newswires.

He declined to give a specific forecast for the full year or for the years ahead. But he said there was room to improve the company’s operating profit margin.

Nestle said the strong Swiss franc erased 12 percent of its sales. The company, which has a strong footing in Asia, also felt the effects of the regional gloom caused by the SARS epidemic. In the Asia, Oceania and Africa region _ usually its strongest-growing region with double-digit growth rates _ Nestle’s sales only rose 3.5 percent.

Brabeck said he was nonetheless ``very pleased with the figures because they were achieved in a very difficult environment.″

Nestle said that its organic growth rate, a new benchmark that strips out things like exchange rate fluctuations, stood at 5.5 percent. Nestle uses the rate to give investors better guidance for its growth performance.

Analysts had forecast a 4.6 percent organic growth rate.

Nestle’s net debt surged to 21.1 billion francs ($15.2 billion) at the end of June from 15 billion francs at the end of 2002.

The sharp rise is due to the company’s decision to carry as long-term debt a share buyback plan related to its acquisition of U.S.-based Dreyer’s Grand Ice Cream Inc. Nestle earlier this year bought 67 percent of Dreyer’s for around $2.8 billion and will buy the remainder in 2006 and 2007 for an expected $2.5 billion.

Nestle shares were up 6 francs ($4.32) to close at 293.50 francs ($211.44) on the Zurich stock exchange.

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