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Nestle H1 Profit Down, Updates FY22 Outlook; Stock Dips

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Shares of Nestle SA were losing more than 1 percent in Swiss trading after the food and beverage giant reported Thursday weak profit in its first half, despite increased sales. Further, the company trimmed fiscal 2022 forecast for underlying trading operating profit margin, but lifted organic sales growth view.

For the year, the company now expects underlying trading operating profit margin around 17 percent, compared to previous estimate between 17 percent and 17.5 percent.

Nestle now expects organic sales growth between 7 percent and 8 percent, while previous estimate was organic sales growth around 5 percent.

Underlying earnings per share in constant currency and capital efficiency are still expected to increase.

Mark Schneider, Nestle CEO, said, "In the first half of the year, we delivered strong organic growth and a significant increase in underlying earnings per share.... We limited the impact of unprecedented inflationary pressures and supply chain constraints on our margin development through disciplined cost control and operational efficiencies... Growing food insecurity around the world and heightened climate concerns, following an increase in unusual weather patterns, underlines the importance of this strategic direction."

For the first half, net profit attributable to shareholders of the parent decreased 11.7 percent to 5.25 billion Swiss francs from 5.95 billion francs in the previous year. Earnings per share fell 9.5 percent to 1.92 francs from 2.12 francs last year.

In dollar terms, attributable profit was $5.55 billion, down from $6.55 billion last year. In euro terms, profit declined to 5.08 billion euros from prior year's 5.43 billion euros.

Underlying earnings per share increased 7.3 percent to 2.33 francs mainly the result of strong organic growth.

The trading operating profit margin decreased 200 basis points to 14.7 percent, mainly due to one-off items. Underlying trading operating profit increased 6 percent from the prior year to 7.68 billion francs. Underlying trading operating profit margin was 16.9 percent, down 50 basis points from 17.4 percent a year ago.

Total sales for the period increased 9.2 percent to 45.58 billion francs from 41.76 billion francs last year, despite the high base of comparison in 2021 and supply chain constraints.

Organic growth reached 8.1 percent, with real internal growth or RIG of 1.7 percent and pricing of 6.5 percent.

The company noted that growth was broad-based across most geographies and categories, with increased pricing and resilient RIG.

By channel, organic growth in retail sales was at 6.7 percent. Within retail, e-commerce sales grew 8.3 percent. Organic growth in out-of-home channels reached 29.6 percent, with sales exceeding 2019 levels.

In Switzerland, Nestle shares were trading at 116.08 francs, down 1.17 percent.

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