Nestle buys market share in China’s market for infant nutrition

The news yesterday that Nestlé (NSRGY) would buy Pfizer’s (PFE) infant nutrition business for $11.9 billion has completely overshadowed last week’s stronger than expected earnings report.

For the first quarter Nestle reported organic sales growth of 7.2%. For the full year Nestlé kept its projections for organic growth at 5% to 6%. In the first quarter growth broke down as 3.1% growth in developed country economies and 13% in developing economies.

Which also tells you what you need to know about Nestlé’s acquisition. Read more

Wait to see if euro turmoil creates a better entry on Nestle (NSRGY)

If this is what qualifies as a tough year for Nestle (NSRGY), I’ll take it.

The company faces the headwind of a strong Swiss franc, which makes its products more expensive for customers pretty much everywhere else.

Costs are 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. Read more

Nobody can accuse these companies of thinking short-term.

Along with its third quarter earnings report on October 7 PepsiCo (PEP) announced that it was creating a new Global Nutrition Group “to deliver breakthrough innovation in the areas of fruits and vegetables, grains, dairy, and functional nutrition. The goal is to grow PepsiCo’s nutrition business from $10 billion in revenue now to $30 billion by 2020.

Ten-years.

A few days before, on September 27, Nestle (NSRGY) announced that would create Nestle Health Science, a wholly-owned subsidiary that will incorporate company’s existing healthcare nutrition business, and the Nestle Institute of Health Sciences that will conduct research into nutritional strategies for improving health and longevity. Nestle said it will invest hundreds of millions of Swiss francs in the institute over the next decade.

There’s that 10-year thing again.

I don’t know exactly what to call this trend, but it’s big. Food companies such as PepsiCo and Nestle, and drug companies such as Abbott Laboratories (ABT) and Bristol-Myers Squibb (BMY) are all targeting it.

This has traditionally been called the “nutritionals” market. But that doesn’t seem adequate anymore.

The old name better fits the days of nutritional supplements being sold through health food stores or products designed to supply nutrition in a liquid, powder, or concentrated form to the old (Ensure) or the very young (Similac).

The new market, and I think it’s still in the early stages of taking shape, has been termed the “nutriceuticals” market to emphasize the greater degree of interaction between the processed food and drug industries, and the ramping up of spending on designing specific nutritional enhancements into traditional foods or food products.

You can see that evolution in PepsiCo’s Tropicana orange juice line which has gone from advertising the health benefits of orange juice to enhancing those benefits by adding extra vitamin C to adding vitamin D to adding calcium to the citation of the Tropicana brand by PepsiCo CEO Indra Nooyi as one of the company’s stable of products that fits with the Global Nutrition Group strategy.

The fact that the definition of the market is a little fuzzy hasn’t prevented market research groups from projecting the size of the market. Does the market include what are called functional foods, for instance? (A functional food is any food aimed to have a health-promoting or disease-preventing property beyond supplying nutrients. It includes such things as vitamin enriched Froot Loops and yogurts with live cultures.) How about organic foods? Some organics? All organics? Only processed organics?

With all those caveats, here are some projections of future market sizes. Global Industry Analysts, projects that the global nutriceuticals market will exceed $243 billion by 2015. (That doesn’t seem totally outrageous if PepsiCo is saying that it can grow its nutrition business to $30 billion in revenue by 2020). BCC Research estimates that the global market for functional food will reach $177 billion by 2013. Compound annual growth will average 7.4%. What’s especially intriguing about that research is BCC’s projections that the traditional supplement sector will be the slowest growing part of the market (at a 3.8% compound average annual grow rate) and that the functional beverage sector will be the fastest growing at a 10.8% compound average annual growth rate.

So how do you invest in this growing market, whatever it’s called? Read more

Nestle (NSRGY), the largest food company in the world, continues to slice and dice, in an effort to shed underperforming or low margin businesses and pick up higher growth, higher margin opportunities.

Nestle has finished selling its last piece of Alcon, its eye-care business, to drug-maker Novartis (NVS). The sale of the 52% of the company that Nestle sold brought in $28.3 billion.

Nestle will use a substantial part of that to reduce the company’s debt, which stood at $29 billion at the end of June. That should maintain the company’s AA debt rating. (Some will also go to fund a plan to buy back about $10 billion in the company’s shares through 2011.)

Paying down debt doesn’t seem very exciting but it’s essential to the company’s strategy of buying growth opportunities in the nutrition, health, and wellness sectors of the food and beverage market. (A company has to clear room on its balance sheet to finance acquisitions either with cash or new debt) This year Nestle bought a frozen pizza business from Kraft, a United Kingdom nutrition company Vitaflo, and Mivina, a maker of instant noodles in the Ukraine. Expect more deals now that the Alcon sale is done.

Nestle is likely to face a tougher second half in 2010 thanks to rising prices of commodities such as cocoa and palm oil.

But the company finished the first half with good momentum. Read more

Why didn’t Hershey rally? Not all candy is equally sweet

Kraft (KFT) makes a bid for Cadbury (CBY) offering a 31% premium to the market price and shares of Hershey (HSY) go just about nowhere?

On the day of the bid Hershey shares rose all of 1.3% or 50 cents a share.

That doesn’t seem right,does it? Read more