Nestle to sell its U.S. candy unit

Nestle agreed to sell its U.S. confectionery unit to Ferrero, the Italian maker of Nutella, in the first substantial step away from the candy industry by the company that invented milk chocolate.

The sale of the unit, which includes the Butterfinger and Baby Ruth brands, is also the first major divestment by the Swiss food giant since Chief Executive Mark Schneider took the helm last year. Nestle plans to focus on healthier and faster-growing categories such as coffee, pet food and water as the food industry grapples with a drop in demand for sugary products.

“Our commitment to invest in the U.S. is as big as ever,” Nestle USA chief Paul Grimwood said on a call.

The U.S. chocolate industry is in tumult. Hershey Co. is cutting 15% of its workforce, and on Tuesday, Lindt & Spruengli reported its weakest organic sales growth since 2009 amid sluggish demand in North America.

The Nestle unit, which also includes brands such as Oh Henry!, Laffy Taffy and Nerds, is suffering a decline in revenue and had sales of about $900 million in 2016. Nestle said in a statement announcing the sale that it remains “fully committed” to its chocolate business around the world. That includes KitKat, which it produces globally except for in the U.S., where Hershey owns the rights.

Closely held Ferrero has been pushing harder into the U.S. Last year it snapped up Ferrara Candy Co., the maker of Red Hots and Lemonhead candies, as well as confectioner Fannie May.

The Nestle sale to Ferrero — which does not include the Toll House baking products — is expected to close near the end of the first quarter, Nestle said. The business represents about 3% of the Swiss company’s U.S. sales.