Nestle said it would plough profits into a $21 billion share buyback programme and shun major acquisitions as pricing power helped it overcome soaring input prices to post a forecast-beating earnings rise.
The world's largest food company reported an 18.4% increase in net profit for the first half of 2007 to 4.916 billion Swiss francs ($4.1 billion) on Wednesday and said it was likely to beat its own results forecasts for the full year.
Nestle shares jumped to the top of the European gainers list in an overall weaker market.
"The strong start to the year allows Nestle to expect above-target organic growth as well as a further sustainable improvement in margins for the full year," Nestle said in a statement.
Chief Executive Peter Brabeck unveiled a surprise 25 billion franc share buyback and said he expected no major acquisitions in the future, just potential bolt-on buys, as the group digested recent medical and infant nutrition purchases.
"It is now time to consolidate," he told CNBC television in an interview following the results release. "We do not see any major acquisition coming up."
Sales rose 8.4% to 51.1 billion francs as the company pushed through price increases to offset rising input prices for agricultural commodities such as coffee and cocoa. Organic sales growth in the period was 7.4%.
"This is a blow-out -- strong figures both in terms of revenues and particularly margins, and Nestle is clearly benefiting from its repositioning into health and wellness," said Jon Cox, head of food and beverages research at Kepler Equities.
Nestle shares rose 5.5% to 476.5 Swiss francs at 0800 GMT as analysts focused on its earnings and sales growth, its improved 2007 outlook and the possibility of asset sales.
The company said it would beat its long-standing earnings outlook -- to improve its EBIT (earnings before interest and tax) margin at constant currencies and reach underlying sales growth of 5% to 6%.
Strong growth in emerging markets at 9.7% and in the group's pharmaceutical division, including Alcon, at 11% helped compensate for sluggish growth in Europe at 1.4%.
Nestle and other food processing companies face rising prices for inputs such as milk and grains. But the Swiss-based conglomerate has said it has the muscle to command higher prices on the store shelves to compensate.
The company has said it aims to raise prices, cull unprofitable products and speed up production rationalisation to prepare for a lasting rise in commodity and energy prices.
Focus on Core Business
Nestle also signaled it was moving closer to a possible sale of U.S.-listed eyecare products company Alcon as pressure grows to shed some of its non-food operations, which also include top world cosmetics company L'Oreal.
"It is also clear that with our transformation to health and wellness and as that transition accelerates, Alcon becomes increasingly a financial rather than strategic holding, and we must assess it as such," said Chief Financial Officer Paul Polman in a conference call.
Nestle owns a 77.55% stake in Alcon, which has a market value of $41.3 billion, according to Reuters data.
The maker of KitKat chocolate wafers and bottler of Perrier water has led rivals Danone and Numico in raising shelf prices in anticipation of higher input costs. Danone and Numico have reported gains in underlying growth, though rising input prices have pressured their margins.
Nestle shares had slightly outperformed the DJ Stoxx European food and beverage index from the start of the year to Tuesday's close, rising around 5% compared with around 2% for the index.
Its shares trade at about 15.6 times forecast 2008 earnings, roughly in line with Unilever and the sector average of 16.2 times.