Nestle's half-year earnings dented by Indian noodles row

LONDON (ShareCast) - (ShareCast News) - Nestle (VTX: NESN.VX - news) reported slightly worse-than-expected half-year sales dented by a recall of its Maggi noodles product in India. The world's biggest packaged food maker, which owns brands like Maggi, Nescafe and KitKat, said group sales fell 0.3% to $43.87bn against analysts' consensus for a 0.1% dip to $42.95m; while net profit fell 2.5% to $4.63bn.

Last month, its Indian unit reported a 20% drop in second quarter sales after the company's Maggi noodles product range was pulled off the shelves due to safety concerns about lead content, something which Nestle strongly disputes.

The cost of removing the product from shelves led to a one-time exceptional loss of INR4.52bn ($69m); which equates to nearly 1.5 times the average profit of the Indian unit in the last four quarters.

However, the US Food and Drug Administration, said its tests on Maggi found the lead level in the popular brand was within acceptable levels countering Indian tests to the contrary. Authorities in the Australia, Canada, New Zealand, Singapore and the UK have cleared the product as well having conducted their own consumption safety tests.

Meanwhile, the Mumbai High Court overturned Food Safety and Standards Authority of India's ban on the noodles on Thursday, and said that Nestle could restart sales in the country "if fresh tests done at a certified laboratory" were found to be acceptable.

However, with the row turning political, the Indian government filed a lawsuit against Nestle's Indian unit on Wednesday, seeking INR640m ($98.35m) in damages on behalf of consumers.

"In India, our withdrawal of Maggi noodles resulted in negative organic growth which will continue into the second half. We are engaging fully with the authorities as we work to relaunch the product," the company said on Thursday.

Away from India, Nestle also experienced slowing sales as economies like Brazil and China cooled, and European consumers purchased cautiously.

In the first quarter of 2015, the food giant saw a 0.5% rise in its sales to $20.9bn due to an increase in prices and volume. The group added that currency headwinds reduced reported sales by approximately 4.5%.