Portfolio Manager Giorgio Caputo of First Eagle Investment Management says Nestle SA (ADR) (OTCMKTS:NSRGY) and Danone SA (ADR) (OTCMKTS:DANOY) are similar in that they are both expected to offer long-term earnings growth as food consumption increases globally.
What I think that is interesting about these companies is that, even though they’re developed-market businesses, almost half of their sales come from emerging markets, where you have a very nice tailwind from a shift in consumer preferences toward processed foods. So as people become wealthier, they tend to consume more processed food.
Both businesses have very impressive market shares in a number of product lines. Nestle is significantly larger and more diversified. They make everything from coffee with brands like Nespresso and Nescafe to frozen pizza and confectionary goods.
Danone is a bit more focused on dairy and yogurt. Danone has had some issues with two declining products, Activia and Actimel. We believe that these declines have masked the company’s underlying revenue growth and that these declines are running their course, so investors will be able to see that underlying revenue growth more clearly in the years ahead. They really provide very attractive dividend yields and focus on cash returns to equity holders.
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