Nestle Says Emerging Markets Help It Show Rise in Profits

LONDON, Aug. 22 ? Nestle, the world's biggest food company, said today that sales ofits packaged food increased in emerging markets, compensating for slower growth in the United States and in Western Europe and helping to lift first-half profit 13 percent.

Nestle, based in Vevey, Switzerland, also said that
sales growth in regions like Asia, Eastern Europe
and Latin America, may slow later this year. That
warning, coupled with shrinking profit margins,
helped push Nestle shares down nearly 2 percent in
trading in Zurich.

"The first reaction is that the results look good," said Henk Grootveld, a fund manager with Robeco in
Rotterdam, which owns some Nestle shares. "But if margins are down that is never good."

Net income grew to 3.15 billion Swiss francs ($1.75 billion), compared with 2.8 billion francs a year ago.

But much of that growth came from lower financing costs, a lower tax rate and gains from companies in which
Nestle owns some shares ? factors that had little to do with Nestle's core business of selling packaged drinks
and snacks like Nescafe, Stouffer's frozen and Smarties candies.

At the same time, Nestle's profit margins shrank as the company spent more money advertising existing
products and bringing out new ones. Also weighing down margins were the cost of a new technology system
and a change in the way Nestle accounts for rebates, Francois-Xavier Perroud, a spokesman, said.

Mr. Perroud said Nestle was benefiting as people in countries like Brazil and other emerging markets earned tigher incomes that allowed them to spend more on packaged foods.

Buttressing that trend was slower growth in the United States, where Mr. Perroud said, Nestle's pet food business was hurt by the introduction of popular new products from competitors, like Procter & Gamble
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