Nestlé cuts the meat in bid to build healthier food giant

Action shows a shift in consumer behaviour toward more nutrition-conscious products

Nestlé put its ailing Herta lunch-meat business up for sale as chief executive officer Mark Schneider tries to spur sales growth at the world’s largest food company through acquisitions and divestments.

The Swiss company’s shares rose as much as 3.7 per cent to a record as it forecast improved sales and said that it expects to cede control of its dermatology unit by the middle of this year. After $18.5 billion (Canadian) of deals in 2018, there’s no sign Schneider will stop nipping and tucking in his third year on the job.

“He’s outside of the longstanding culture within Nestlé, which has given him ability to think with a slightly different perspective and act decisively,” said Thomas Russo, fund manager at Gardner Russo & Gardner, which has held Nestlé shares for 33 years. “And you see the evidence beginning to show.”

Revenue accelerated for the first time in seven years in 2018. The food company has been gobbling up smaller, fastergrowing brands such as Blue Bottle Coffee and Sweet Earth as health-conscious consumers switch from mainstream labels to niche brands. Nestlé, under pressure from activist shareholder Dan Loeb to boost returns, also forecast $925 million of restructuring costs this year amid the shakeup.

The company plans to push further into plant-based alternatives for protein as it considers selling Herta, a business with sales of $898 million. The field is quickly expanding as Danone adds more almond-based milks and Unilever bought the Vegetarian Butcher, a Dutch maker of meat substitutes. Nestlé has been developing the Incredible Burger, which is made out of soy and wheat protein.

“With these portfolio changes, the strategic picture of the group becomes much clearer than one to two years ago, with our focus on food and beverage and nutritional health,” Schneider told reporters at Nestlé’s headquarters in Vevey.

One obstacle is deflation in Europe, Japan and Australia, which contributed to the weakest annual gain in pricing in more than a decade. Nestlé will need to raise prices without turning off customers as Schneider seeks to return to mid-single-digit sales growth by next year. Growth was 3 per cent in 2018.

Nestlé also said it’s accelerating its buyback to complete the $26 billion program six months early. Still, Schneider told reporters the company isn’t excluding further M&A.

“Acquisitions could easily be financed,” he said. “We have strong cash generation, and one of the strongest balance sheets in the industry.”

The CEO said portfolio adjustments aren’t over. Investors have called for the sale of Nestlé’s U.S. frozen-food business, which had flat sales in 2018.

Following criticism by Loeb that the board lacks consumergoods expertise, Nestlé proposed Dick Boer, former CEO of Dutch grocer Ahold, and Dinesh Paliwal, CEO of Harman, as new directors.