Nestle accelerates restructuring plan
ZURICH: Swiss food giant Nestle expects organic sales growth to stay muted in the fourth quarter and is speeding up its restructuring programme as it seeks to improve profit margins.
Makers of packaged foods are under pressure to review their business models and brand portfolios to satisfy consumers’ appetite for fresh, healthy, local foods, while at the same time improving returns to address increasingly vocal activist investors.
The maker of KitKat chocolate bars said on Thursday it expected its 2017 operating margin to slip by 0.4 to 0.6 percentage points as restructuring costs could reach 1 billion Swiss francs ($1 billion), double the initial plan, while maintaining guidance for overall charges of up to 2.5 billion francs until 2020.
It said, however, that its underlying trading operating margin, which strips out restructuring costs, was set to improve by at least 0.2 percentage points in constant currency this year.
Under pressure from activist investor Third Point to improve near-term returns, Nestle last month set a target for this margin to reach 17.5-18.5 per cent by 2020, up from 16.0 per cent in 2016.
Organic sales growth accelerated to 3.1 per cent in the third quarter from 2.3 per cent in the first and 2.4 per cent in the second, in line with expectations in a Reuters poll of analysts, helped by improved trading in Europe and Asia.
Nestle, also known for Nescafe instant coffee and Gerber baby food, said it expected organic growth for the full year to be in line with the 2.6 per cent seen in the nine-month period, implying a slowdown in the fourth quarter from 2.9 per cent in the year-ago period.