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Food giant Nestle SA (OTC: NSRGY) has a tendency to fly under the radar for U.S. investors. In the consumer goods space, investors are often tuned in to the U.S.-based conglomerates like Procter & Gamble (NYSE: PG). But it’s a mistake to ignore Nestle, a $240 billion company by market capitalization.
Nestle has outperformed U.S. stocks so far this year. Its shares are up 5% year-to-date, while the S&P 500 index is up just 1% in 2015. Nestle stock got a further 3% boost after reporting better-than-expected first-half fiscal results.
Here’s what has helped Nestle outperform its peers thus far.
Resiliency in a Tough Climate
The environment for Nestle is far from easy. Based in Switzerland, Nestle is at the center of a very difficult European economy. But the company’s sales have held up very well. Total revenue over the first half of the year declined only fractionally. Organic revenue, which strips away non-operating fluctuations like foreign-exchange effects, is up 4.5% through the first half.
Compare this to P&G, which saw revenue decline 5% to $76.3 billion, and diluted GAAP earnings per share from continuing operations fall 21%, in its recently concluded fiscal year.
Profits fell 2.5% over the first half, but on a constant currency basis, Nestle earnings per share actually rose a very satisfactory 7.3%.
Nestle’s Operating Advantages
As a mostly international company, Nestle has a strong foothold in faster-growing emerging markets than many of its U.S.-based competitors. This is a significant advantage, because these nations, such as China and India, are growing at a much more rapid pace than more developed economies.
For example, Nestle’s organic revenue growth was 2.2% in the developed markets over the first half of the year, and 7.3% in the emerging markets.
One reason why the emerging markets are so attractive is because they are more conducive to price increases. Millions of consumers are advancing into the middle class, and as such, can absorb price increases at a higher rate. Price mix was key for Nestle over the first half.
Of Nestle’s 4.5% organic revenue growth, 1.7% of it was due to higher volumes, while a bigger portion, 2.8%, was due to price increases.
Among its product categories, Nestle saw broad-based strength. Organic revenue of its water products rose 5.3% over the first half, driven by double-digit growth for Nestle Pure Life, and its premium international brands, San Pellegrino and Perrier, grew at high single-digit rates.
Sales of Nestle’s nutrition products rose 3.9% organically, boosted by new products under the Nido, Nan and Cerelac brands.
Along with its first-half results, Nestle confirmed its forecast for the rest of the year. Management expects full-year organic sales to increase 5% this year, which would be a strong performance in 2015.
Satisfying for Investors
Nestle stock should be attractive to investors, because it offers a nice blend of growth and dividends. The company is seeing strong organic growth, fueled by excellent performance in the emerging markets. This has provided its stock with a market-beating return so far this year.
And, Nestle rewards investors with a compelling dividend. It pays an annual dividend that currently yields 3%. The stock is attractively valued, trading at just 16 times earnings.
As a result, Nestle should be on the radar for value and income investors.
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