Nestle emerging market growth to offset costs

VEVEY, Switzerland (Reuters) - Swiss food giant NESTLE (NESN.CH) said strong demand in emerging markets would help it offset rising raw materials prices.

It reported underlying sales growth accelerated to 6.4 percent in the fourth quarter and said it was confident of achieving 5-6 percent sales growth and an improvement in earnings before interest and taxes (EBIT) margin in 2011.

"We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices," the maker of Gerber baby food and Nescafe coffee said in a statement on Thursday.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"2010 growth figures should give confidence on our ability to drive the top line organically in 2011," Chief Financial officer Jim Singh said in a conference call.

Underlying sales from Nestle's food and beverage business rose 6 percent to beat a Reuters forecast of 5.5 percent, making it confident of meeting its long-standing target of 5-6 percent growth in 2011.

Peers Danone and Unilever recently said they were confident about passing on higher costs but Kraft Foods lowered its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon to Novartis .

Annual sales at its premium coffee capsules Nespresso brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

Nestle shares, which gained 9 percent in 2010, lost about 4 percent since the beginning of the year, as investors worry about input cost inflation and forex headwinds.

They trade at a slight premium to Danone, Kraft and Unilever at about 14 times estimated 2012 earnings and were indicated to open 1.6 percent higher, pre-market data showed.

($1=.9669 Swiss Franc)

(Editing by David Hulmes and Sophie Walker)

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