Nestle SA (NESN:VX; NSRGY:OTC) reported a strong quarter, with organic growth of 8.5%, broad-based across most geographies and categories, and off sales increase of 9.2%. Pricing rose 7.5%, reflecting cost inflation.
The company is looking for full-year growth of around 8%, with an operating profit expected at around 17%. These numbers are all near the top end of the company’s goals.
Net acquisitions had a positive impact of 1.2% on earnings. The company continued to build the Health Science division, buying two small companies in Brazil and New Zealand. Acquisitions also included The Bountiful Company and Orgain, two well-known niche brands.
Nestlé also announced plans to acquire Seattle’s Best Coffee brand from Starbucks.
Spending on Pets Grows Rapidly
As has been the case recently, pet care continued to be the largest contributor to organic growth, particularly the premium brands and veterinary products. It seems people are still prepared to spend increasing amounts on their pets.
Nestlé, the world’s largest food and beverage group, has a strong balance sheet, reflected in Moody’s Aa3 rating. It has increased revenue (and its dividend) in virtually all of the past 60 years and never cut the payout over that period.
It bought back over Euro 6 billion of stock last year and continues with the program. With a consistently high return on capital and equity–its return on invested capital is more than twice virtually every peer–it is trading near the low end of its valuations (with a p/e of 18.3, its lowest since 2015), though the yield (at 2.6%) is lower than its historical average.
Nestlé is a core holding and is a Buy here.
Consistency Is a Virtue, as Agnico Beats Expectations Again
Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) beat market expectations modestly, with a solid quarter that saw most projects advance on track. Costs were relatively under control, though synergies with Kirkland after the merger are still helping, as is the low Canadian dollar keeping USD costs down at its Canadian mines. Management noted that mitigating cost increases is a major focus.
One mine, the new Amaruq, in Nunavit, completed on time and on budget, is experiencing a successful ramp-up, more than doubling production since the first quarter of the year and helping the company’s increase in production.
President Ammar AlJoundi called it “a world-class mine by any standards.” Management, in fact, emphasized the continued progress on all the expansion projects, with some excellent drill results, validating Agnico’s theme of leveraging existing mines and infrastructure.
Cash Flow Used To Pay Down Debt and Buy Back Shares
Agnico has earned an operating margin of US$2.4 billion year-to-date. It used this to reduce debt, repaying US$100 million notes to end the quarter with net debt of US$520 million.
And it repurchased around one million shares, almost twice as many as it had purchased in the previous two quarters.
Agnico, as we have discussed before, is a solid, conservative company with a strong culture, with mines in five mining-friendly jurisdictions, with top management, and a strong balance sheet.
The stock price has bounced in the last 10 days to the top of its four-month range, so we will look for a pull-back to add to positions. But the valuations are quite low, trading at less than 1.3 times book and nine times cash flow.
If you do not own one, this is one to Buy and put away.
BEST BUYS this week, in addition to the above, include Midland Exploration Inc. (MD:TSX.V); Franco-Nevada Corp. (FNV:TSX; FNV:NYSE); Lara Exploration Ltd. (LRA:TSX.V); and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE).
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