Smooth flowing

Zurich, April 25 (Reuters): Nestle managed to raise prices by more-than-expected in the first quarter, helping the world's largest food group defy high raw-material costs and achieve underlying sales in line with market expectations.

?Our satisfactory first-quarter growth is in line with our expectations,? chief executive and new chairman Peter Brabeck said in a statement on Monday. ?It allows me to confirm our full-year organic growth target of between 5 and 6 per cent.?

The maker of Nescafe coffee and KitKat chocolate wafers said first-quarter organic, or underlying, sales grew 4.6 per cent, exactly in line with the average forecast by 13 analysts in a Reuters poll but missing Nestle's target for the year, as it had in 2004.

Nestle has an annual 5-6 per cent target on underlying sales growth ? which measures volume and price changes, stripping out the effect of currencies and divestments and acquisitions ? and is focusing on improving profits this year.

Total sales came in virtually flat at 20.5 billion Swiss francs ($17.32 billion) in the quarter.

Nestle, which also produces breakfast cereals, bottled water and baby foods, said raw-material prices had continued to rise in the first quarter but that it had passed this on to customers by upping prices by 2.0 per cent, above expectations.

The 2.0 per cent price increase meant real internal growth (RIG), which measures sales growth by volume, was lower than expected at 2.6 per cent, but analysts were still pleased with the sales figures.

?Even if RIG disappointed slightly, the price effect shows that higher raw material prices can be passed on,? Vontobel analyst Rene Weber said.

High prices for raw materials such as milk, coffee, cocoa and sugar, coupled with an increase in oil prices that has made packaging more expensive, have hit the food industry.

But Nestle says it expects that prices have now peaked and will eventually ease toward the second half of the year. Yet, it said it will react if raw material prices were to spike now.