UPDATE: Nestle Signals Confidence With Raised Dividend, Buyback

Signalling confidence, Switzerland's Nestle S.A. (NESN.VX) Friday raised its dividend and detailed a new share buyback program, even though profits fell sharply in 2009 because the previous year's result had been inflated by proceeds from asset sales.

The world's largest food and beverages producer, which earlier this year bought Kraft Foods Inc's (KFT) frozen pizza business, a consequence of the U.S. rival's pursuit of Cadbury, said net profit fell to 10.42 billion Swiss francs ($9.56 billion) compared with CHF18.04 billion in 2008. The previous year's figure was inflated by CHF9.2 billion in proceeds from the sale of the first tranche of U.S. eye care-company Alcon Inc. (ACL) to Novartis AG (NVS).

Sales declined 2.1% to CHF107.62 billion from CHF109.91 billion.

However, the figures beat analysts' expectations and the company said it plans to raise its 2009 dividend to CHF1.60, from CHF1.40.

Nestle also said it would complete its current CHF25 billion share buyback in the course of this year, and would then start a new CHF10 billion buyback program. It expects to have completed half of the new program this year.

Analysts had speculated about Nestle's plans for its large cash pile following its announcement in January that it will sell the remainder of Alcon to Novartis.

"Maybe with this strong result, the market can start to focus on what a solid business Nestle is rather than on buybacks," said Kepler analyst Jon Cox, who has a buy rating and a CHF56 price target on the stock.

On the Swiss bourse, Nestle shares were indicated to open 0.7% higher at CHF51.84. They have gained 1.8% so far this year.

Bernstein Research analyst Andrew Wood, who has an outperform rating and a CHF60 price target on the stock, said a strong performance in the second half of 2009 bodes well for 2010.

Nestle's organic growth, which measures changes in selling prices and volumes but excludes the impact of currency moves, was 4.1% for the whole of 2009, an improvement on third quarter growth of 3.8% and 3.5% during the first half of the year.

Nestle said it wants to increase organic growth in its food and beverages business this year, but didn't provide a specific target. It also reiterated its usual guidance for an improved operating profit margin in constant currencies.

-By Martin Gelnar, Dow Jones Newswires, +41 43 443 8042; martin.gelnar@dowjones.com

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