Nestle Surges on Strong Earnings, Guidance, $21B Buyback

Ordinary shares of Nestle are up nearly 10% in late-afternoon trading in Zurich, on news the company posted better-than-expected first-half net income of 4.92 billion Swiss francs (+18% y/y) on an 8.4% increase in sales to 51.1B francs. Nestle also forecast slightly higher margins and a 25B franc buyback over three years. Analysts had forecast net income of 4.59B francs on sales of 50.48B francs. Nestle expects margin expansion in the second-half as it passes on higher costs for a variety of products to customers. Sales volume will be sacrificed, but management said it believes full-year results will beat forecasts. Analysts reacted positively, with an Allianz analyst saying, "I have been looking at Nestle for 15 years and I have never seen anything like this." Bear Stearns analysts called the results "watershed." The $21B equivalent buyback amounts to approximately 14% of shares outstanding based on Tuesday's ordinary share closing price. Nestle's ADRs lost 0.6% to $93.66 on Tuesday.

Sources: Press release, Bloomberg, MarketWatch
Commentary: Baby Stocks: 10 Ways to Grow Your Portfolio • Ten Ways to Invest in Switzerland • Is G.Willi Food-International Nestle's Next Takeover Target?
Stocks/ETFs to watch: NSRGY.PK. Competitors: CAG, KFT, GDNNY.PK. ETFs: EWL
Related: Nestle conference call presentation slides [PDF download]

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