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Nestlé (NESN) has reported strong organic growth of 3.6% in the first half of the year led by overall volume growth and an improvement in US trading.

Organic growth of 3.6% in the six months to 30 June consisted of volume growth of 2.6% and pricing of 1% as there was some price deceleration in the period owing to the deflationary environment in Europe and lower pricing in Brazil.

The year-on-year growth acceleration was led by the United States and Brazil, mitigating weaker sales in Pakistan and softness in some categories in China.

Organic growth was 2.4% in developed markets and 5.3% in emerging markets.

All product categories posted positive growth, with the largest contributions coming from Purina PetCare, coffee and infant nutrition.

Nestlé said coffee returned to mid single-digit growth in the second quarter with improved Nespresso and Nescafé momentum across all zones. The launch of Starbucks products in 14 markets saw strong demand and further markets will follow in the second half of the year.

Its Americas zone posted organic growth of 3.9% and volume growth of 1.9% based on acceleration in Latin and North America, the latter of which posted its strongest quarter of organic growth in eight years in the second quarter.

Europe, Middle East and North Africa (EMENA) saw 2.4% organic growth, with strong volume growth of 3.7% held back by a 1.3% decline in pricing, particularly in Western Europe.

Nestlé Waters had organic growth of 1.4% as pricing growth of 4.7% mitigated a 3.3% fall in volumes, with performance in North American notably strong.

Other businesses, including Nespresso, Health Science & Skin Health, were up 7.4% with volume growth of 6.7% driven by mid single-digit growth in Nespresso which had “very strong” momentum in the Americas.

Total reported sales increased by 3.5% to CHF45.5bn, with net acquisitions having a positive impact of 1.1% and foreign exchange reducing sales by 1.2%.

Underlying trading operating profit increased by 10.1% to CHF7.8bn. Underlying trading operating profit margin reached 17.1%, an increase of 100 basis points in constant currency and on a reported basis.

Margin expansion was supported by pricing, structural cost reductions, operational efficiencies and improved mix. Pricing more than offset input cost inflation in the first half. Consumer-facing marketing expenses increased by 5.1% in constant currency.

Nestlé CEO Mark Schneider commented: “”We are encouraged by our first half results and have made further progress toward our 2020 financial goals. Disciplined execution and fast innovation contributed to improved organic growth and profitability.

“Across our categories increased investment behind our brands and in innovation is clearly paying off, as reflected in our strong momentum in PetCare and the return to mid single-digit growth in coffee. Our Starbucks launch has been a great success so far and we plan on further geographic expansion and product innovation to make the most of this unique opportunity.

“Active portfolio management will continue to sharpen our strategic focus and position the company in attractive high-growth businesses. Our value creation model is clearly delivering the expected results and will support sustained profitable growth.”

The CHF10.2bn sale of Nestlé Skin Health expected to be completed in the second half of 2019, while the strategic review of the Herta charcuterie business is ongoing and expected to be completed in late 2019.

Nestlé confirmed full-year guidance for 2019, expecting organic sales growth around 3.5% and the full-year underlying trading operating profit margin at or above 17.5%.

Nestlé shares are up 1.2% this morning to CHF103.42 on the news.

Morning update

As the markets closed last night French hypermarket group Casino (CO) posted its first half results, showing a 3.5% improvement in organic net sales.

Consolidated net sales amounted to €17.8bn the first half of the year, representing an increase of 3.5% on an organic basis (excluding fuel and calendar effects) and a change of 0.3% in total.

In France, first half net sales fell 2.9% in total and by 1.6% on an organic basis, though same store sales were up 0.5% with positive trends in Géant hypermarkets (1% same-store growth) and in convenience stores (3.1% same-store growth).

E-commerce achieved strong momentum, with an sales increase of 11% on an organic basis, driven by the growing contribution of the marketplace, which accounted for 40.1% of the sector in the second quarter.

Sales in Latin America rose by 10.1% on an organic basis and 4.9% on a same-store basis, supported by the “very good” performance of its Assaí business (24.5% organic growth).

Consolidated trading profit fell 12.1% to €347m on an organic basis and down 20.7% on a total basis, reflecting an unfavourable basis of comparison due to the seasonality of tax credits in Brazil.

Excluding tax credits, consolidated trading profit was up 12.9% on an organic basis and 2.9% in total.

The group achieved €60m worth of cost savings achieved in the period and has raised its 2019 target raised to €130m from €100m as it continues to dispose of loss-making stores.

Casino also plans to accelerate its debt reduction plan, to reach net debt in France of less than €1.5bn at end-2020 and maintain this level over time, thanks to the achievement of the €2.5bn disposal plan of which €2.1bn have been signed and to non-payment of the dividend in 2020, representing a total saving of around €500m from dividends over 18 months.

Mothercare has posted a 3.2% decline in first quarter like for like UK sales amid reports it is preparing to sell off its UK retail business.

Total UK sales in the quarter were 23.2% lower than last year, as a result of the extensive store closure programme with its store estate down to 79 stores from 134 stores.

The group stopped short of confirming reports that it planned to spin-off its UK retail operations, instead stating that it had made progress “in creating the optimal structure for UK retail operations as an independent Mothercare UK franchise”.

It said the medium-term outlook for the UK market will continue to be uncertain and volatile, accompanied by fragile consumer confidence

“Against this backdrop and the need for continued promotional activity, gross margin improvements in the UK are expected to take longer to materialise than previously anticipated,” it stated.

As such, the group will not see any improvement in underlying full-year profitability before tax this year.

CEO Mark Newton-Jones said: “The UK retail market remains challenging and though the rate of decline in LFL sales has moderated, margin investment in promotional activity has been necessary to stimulate sales, both in our stores and online. The impact of this has negated much of the margin benefits we had expected to materialise. Furthermore, we have observed a lower than expected transfer of sales following the CVA store closure programme which completed in early April 2019.

“The process of restructuring and rebuilding a sustainable business continues, and we have in place financing plans to support these actions as we aim to be bank-debt free by the end of the year. Our immediate priority is to complete the transformation of the business with a near-term focus on evolving and optimising the ownership, structure and model for our UK retail operations as an independent franchise”.

International retail sales declined 4.5% in constant currency and were down 2.1% in actual currency.

On the markets this morning, the FTSE 100 has edged up 0.1% to 7,495.7pts.

Risers include McBride (MCB), up 3.3% to 67.7p, Majestic Wine (WINE), up 1.8% to 258p and Ocado (OCDO), up 1.1% to 1,223p.

Fallers include Mothercare, down 7.6% to 18.25p on today’s update, PayPoint (PAY), down 2% to 928.1p, Cake Box (CAKE), down 1.9% to 177p and Morrisons (MRW), down 1.3% to 196p.

Yesterday in the City

The FTSE 100 dipped 0.2% on what was a hectic day for food and drink industry results yesterday.

UK-listed spirits giant Diageo fell back 3.4% to 3,240.5p despite strong first half results and the announcement of a £4.5bn share buyback as investors cashed in their profits from a recent share price surge.

Unilever shares fell back 2% to 4,896p after the announcement of its first half results yesterday amid concerns over weaker than expected organic growth amid a slump in ice cream sales and weak trading in its wider food business.

In the UK the biggest risers yesterday were FeverTree (FEVR), bouncing back 8.2% to 2,430p after its own share price plunge on Tuesday on slowing up UK growth. Also on the up were Nichols (NICL), up 6.8% to 1,735p, AG Barr (BAG), up 3.8% to 650p, PayPoint (PAY), up 2.9% to 947p, Devro (DVO), up 2.8% to 206.5p, Compass Group (CPG), up 2.7% to 2,018 after its own trading update and Coca-Cola HBC (CCH), up 1.9% t 2,793p.

Fallers included Majestic Wine (WINE), down 3.4% to 3,240.5p, DS Smith (SMDS), down 2.2% to 375p, McBride (MCB), down 2.2% to 65.5p, Marston’s (MARS), down 2% to 105.1p, Greene King (GNK), down 1.7% to 629p and Marks & Spencer (MKS), down 1.5% to 208.5p.

Internationally, AB InBev (ABI) shares were up 4.1% to €90.00 after strong second quarter growth, while French pair Danone (BN) and Carrefour were up 2.5% to €77.20 and 2.1% to €18.02 respectively after their market updates.

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