Nestle, Sara Lee profits lifted by price increases
Nestle SA (NESN.VX: Quote, Profile, Research, Stock Buzz), the world’s largest food company, reported a first-half profit at the top of analysts expectations on Thursday, aided by price increases that offset rising commodity costs.
A similar strategy also helped U.S. foodmaker Sara Lee Corp (SLE.N: Quote, Profile, Research, Stock Buzz) post a higher-than-expected profit on Thursday as it raised prices to offset soaring costs for items like wheat and energy. Sara Lee also forecast profit for the current fiscal year that is higher than some analysts’ estimates.
But investors are concerned that as price increases for well-known brands like Nescafe coffee are pushed through to the supermarket shelf, more consumers will look to lower-priced items. Reliance on price increases has already pressured volume of products sold by some companies.
Sara Lee shares fell 2 percent on the New York Stock Exchange, adding to a nearly 10 percent drop to date in 2008 payday advances. Shares of Nestle rose 0.1 percent on the Swiss stock market after trading lower earlier and are down 9.3 percent for the year.
Sales volume growth in the first half of the year at Nestle slowed to 3.5 percent from the first-quarter’s rate of 4.5 percent.
European foodmakers like Nestle and Unilever Plc/NV (UNc.AS: Quote, Profile, Research, Stock Buzz) (ULVR.L: Quote, Profile, Research, Stock Buzz) have seen their stocks pressured because of concerns that price increases had gone too far. In contrast, U.S. food companies have in general seen their shares rise in recent weeks as a similar strategy, and cost cuts, succeeded in offsetting commodity costs.
MARKETING DIFFERENCES
U.S. food companies also have been aggressively increasing spending on advertising to boost sales.
Filed under: economics by Pascal