If this is what qualifies as a tough year for The company faces a headwind from a strong Swiss franc, which makes its products more expensive for customers pretty much everywhere else.
Costs are also climbing, with increases in the prices of everything from corn to sugar.
And yet for the first quarter of 2011 -- despite what the company calculates was a 9.8% hit from foreign-exchange rates -- the company saw sales for its continuing business fall by just 1.2% from the first quarter of 2010.
Organic growth, a measure which excludes currency effects, climbed by 6.4%, as the company’s emphasis on growing its business in emerging economies paid off big. The volume of goods sold climbed by 4.9%, beating the 3.7% increase expected by Wall Street analysts.
Organic sales growth came to a sluggish 4.3% in the Americas and 3.9% in Europe -- but to a better-than-solid 11.8% in Asia, Oceania, and Africa.
Strong growth in emerging markets resulted from the company’s success in adding new retail outlets by tailoring products, package sizes and prices to emerging economy customers. The company’s goal is to add 1 million additional retail outlets in emerging economies by 2012. Emerging economies now account for about a third of Nestlé sales.
The company also benefited from its decision to make nutrition products one of its core businesses, as sales in that unit showed 8.9% organic growth.
In its earning conference call, the company reiterated its guidance for 5% to 6% organic sales growth for 2011 and its projection that it will increase margins on a constant currency basis.
Tough times tell investors a lot about how well a company is managed, and Nestlé’s ability to continue to execute its strategy against currency and commodity headwinds has been impressive to date.
The stock has pulled back slightly from its 52-week high on weakness in European stocks on new worries about the euro. (Yes, Nestlé does its business in Swiss francs, but the Swiss stock market isn’t immune to turmoil around it.)
I think that continued euro turmoil might take the stock a bit lower -- say $56, from today’s $59-plus -- although it could fall even down to the $51 to $52 range of the February and March lows.
I’m adding the stock to my watch list today while I wait for a better entry point.
If, as now looks likely, investor sentiment continues to show a shift toward preferring safety in such sectors as consumer goods, the stock is likely to move higher even from today’s levels. If you own the shares, I’d certainly hold on with that expectation. Nestlé is, at the moment, the class of the global consumer goods sector.
