(By Tim - iStockAnalyst Writer) With the current belief that global economic slowdown will be the order of the day for the near term I wanted to find a company that has an opportunity to continue to grow and prosper in that type of environment. A deeper look into Nestlé shows a company that allows a stock owner to sleep at night but still offers interesting, if not exciting, long term prospects.
Nestlé is the world's largest food company. Based in Switzerland, they have 480 factories throughout the world and 276,000 employees. The company has annual sales of about $110 billion Swiss Francs and a market cap of of 170 billion Swiss Francs. (As I write this one Swiss Franc is worth about $1.16). Here is a listing of some of their better know products and the list covers only a fraction of their worldwide product offering:
- Nescafe, Taster's Choice, Arrowhead water, Perrier, Nestea, Nesquik, Coffee Mate, Carnation, Gerber, PowerBar, Jenny Craig, Dreyers ice cream, Stouffer's, Lean Cuisine, Hot Pockets, Toll House, Nestlé Crunch, Kit Kat, Butterfinger, Purina, Fancy Feast, Pro Plan, Tidy Cats.
With their global reach, Nestlé management has the simple goal of year over year organic growth of 5% to 6%. They define organic growth as growth in their existing product lines. Second line goal is to continue to improve EBITA margins. For 2007 net income came in at 9.9% of sales. I find that impressive for a company with $130 billion in sales of consumer staple products. The company pays an annual dividend and currently yields about 2.7%.
Recently Nestlé has been significantly exceeding its organic growth goals. Results for the first 9 months of 2008 have organic growth coming in at 8.9%. Bottom line growth has been impacted by the strong Swiss Franc. The company is generating growth world wide, with and average growth of 6% in the established economies of western Europe and North America and 16% in the emerging markets. The company has been showing very strong growth in the emerging economies of Latin America and China. They recently announced the opening of a new Research and Development Center in Beijing.
To recap, here is what you get with Nestlé stock:
- A conservatively managed company that works towards long term growth of 5% to 6% and often exceeds their goal.
- Global product distribution and sales with significant exposure to strong emerging market growth.
- One of the most financially stable companies in the world. At the end of 2007 they had over $7 billion in cash and the company is able to borrow at below Libor rates.
- Strong dividend growth, increasing at a 15% rate over the last 3 years.
Nestlé stock trades in Switzerland (obviously) for those whose brokers can fill trades there and do not want to take currency risk between the dollar and franc. The sponsored ADR trades in the pink sheets under the symbol: NSRGY. ADR holders will benefit if the dollar strengthens against the Swiss Franc and vice versa. Volume for the ADR is good with over 1 million shares trading on a typical day. If you are confused by recent share prices, the company did a 10 for 1 stock split is Swiss shares and changed the ADR from 4:1 to 1:1 in April 2008.
