Nestle sees food price pressure easing in second half of year

Nestle expects pressure from the high prices of basic foodstuffs to ease in the second half of the year, helping it meet its sales growth target in tough markets, after first-half results beat forecasts.

The world's biggest food group said underlying sales rose 6.6% as volume growth ticked up, which analysts said was unique in the sector. Growth was driven by strong demand from emerging markets and price increases, as the company managed to pass on the soaring cost of its raw materials to consumers.

Nestle also reported solid performance in Europe, despite its weak economy, as the company sold more affordable goods like its Nescafe 3-in-1 soluble coffee, KitKat chocolate bars and new peelable banana ice cream. Analysts had on average forecast 6.3% sales growth.

A very solid set of numbers for what is a class act in the space, said Jon Cox, analyst at Kepler Capital Markets.

The company, which is a big consumer of raw materials such as coffee, cocoa and milk, said input cost pressure resulted in an increase of 50 basis points in the cost of goods sold.

World food prices surged in July after falling in the previous three months and could rise further, the United Nations food agency said on Thursday.

Nestle said it expected commodity price pressures to ease in the second half, helping it meet its long-term target for underlying sales growth of 5-6% this year despite the tough business environment, especially in developed markets.

The worst US drought in over half a century has pushed up grain prices sharply, but cereals only make up a relatively small part of Nestle's raw material costs and the company is well hedged against other commodity prices. Nestle is maintaining its outlook for input prices to rise in the low to mid-single digits for the year, CFO Wan Ling Martello told analysts, without giving details.

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