Amsterdam, May 2 - Dutch food group Numico NV posted a 7.8 percent rise in first-quarter operating profit on Wednesday, below expectations, but it reiterated its 2007 targets and said it would offset higher milk prices.
Europe's largest maker of baby food said earnings before interest, tax and amortisation (EBITA) rose to 127 million euros ($173 million) and sales rose 6.5 percent to 674 million euros, after a good performance in Eastern Europe and Asia Pacific.
The rate of growth was below the rate of sales growth seen during most of 2006, but Numico confirmed its total sales growth target for 2007 of 10 to 12 percent and an EBITA margin up 10-20 basis points.
"These are pretty disappointing results. The numbers are below expectations, especially the level of organic sales growth. I expect the shares will come under pressure," said analyst Richard Withagen at SNS Securities.
Numico, which also makes special nutrition products for specific diseases, was expected to post operating profit of 129 million euros on sales 7.6 percent higher at 681 million euros, according to the mean forecast in Reuters poll of 14 analysts.
"The Baby Food division grew by 8.0 percent in Q1 2007, against record-high sales growth comparables of Q1 2006... The underlying trend for Western Europe is encouraging, with good performances in key growth markets and French market recovery completed by Q3 2007," Chief Executive Jan Bennink said.
"Clinical Nutrition achieved excellent sales growth of 14.1 percent, reflecting the recovery of the German market coupled with strong overall performance," he added.
The Dutch blue-chip is regarded as a high-growth business after double-digit percentage sales growth in 2004, 2005 and 2006, and looks set to benefit from major demographic trends.
High birth rates in emerging markets such as China should benefit the baby food unit, while an ageing population in the developed world creates a bigger market for nutrition products.
Numico said its keenly awaited HIV product had entered phase III trials, expected to be completed by the end of 2010.
Numico shares trade at around 40.5 euros, and have barely risen since January after investors were disappointed by the 2007 outlook and unnerved by talk of higher milk prices.
Numico said it would respond to steep increases in milk prices, which have also hit Nestle by raising its own prices and introducing additional cost savings programmes.
Milk supply has failed to keep up with surging demand in emerging markets, driven not only by population growth but also by rising per-capita consumption.
Numico stock has underperformed the DJ Stoxx European food and beverages sector index by about 8 percent since the start of the year, yet Numico remains one of the most highly valued food companies because of its growth profile.
It trades at 23 times projected 2007 earnings, whereas Nestle trades at about 18 times, Unilever at 17 times and Procter & Gamble Co. 21 times.