Nestlé passes on dessert as CEO skips straight to coffee
Swiss company focuses on growth areas as it sheds American ice cream business
ZURICH Nestlé SA chief executive Mark Schneider keeps cutting the sugar and fat. The question is what he’ll add to spur growth at the world’s biggest food company.
In the CEO’S second-biggest disposal, the Swiss company sold its U.S. ice cream business on Dec. 12 to a joint venture with private equity firm PAI Partners for US$4 billion.
That adds the Haagen-dazs and Drumstick brands to Baby Ruth and Butterfinger chocolate bars on Schneider’s list of disposals, with luncheon meat maker Herta and two ailing Chinese candy and food brands still on the block. Nestlé further bolstered its cash pile with a Us$10-billion sale of its skin health business earlier this year.
Schneider has said he’s focusing on growth categories like coffee, pet food, baby nutrition, water and consumer health. At Nestlé ’s most recent financial update, he signalled an appetite for deals. Since taking over almost three years ago, however, he’s done more selling than buying.
Therein lies Nestlé’s conundrum: The maker of Nescafe and Stouffer’s frozen food already enjoys a dominant position in many markets, meaning large purchases would be complicated by competition concerns. Smaller deals won’t move the needle much.
“Nestlé is a bit more constrained when it comes to big acquisitions, because in the areas they want to grow they’re already a very strong player,” said Patrik Schwendimann, an analyst at Zuercher Kantonalbank.
Schneider’s largest acquisition so far was last year’s Us$7.2-billion splurge on the right to market Starbucks products, including coffee capsules for the Nespresso system. Nestlé has also paid US$2.3 billion for dietary supplements maker Atrium Innovations.
But Nestlé is sitting on loads of cash, and its current Us$20-billion share buyback program could be scaled down in the case of sizable acquisitions. The company also has a 23-per-cent stake in L’oreal SA that could be sold to finance purchases. Some investors have taken the Atrium deal as a sign Schneider is planning to expand in consumer health.
“I expect a bigger acquisition — the question mark is on timing,” said Alain Oberhuber, an analyst at
Mainfirst Bank. He anticipates further divestments next year before Schneider moves to make a large acquisition in medical nutrition or health sciences around 2021.
A Nestlé representative declined to comment.
The ice cream deal bolsters a joint venture called Froneri, which was created in 2016 when the Swiss company merged European frozen dessert brands with Pai owned R&R. It creates a stronger challenger to Unilever, the global leader in ice cream with the Ben & Jerry’s and Magnum brands.
For Nestlé, however, the sale marks another retrenchment in the U.S. Possible targets include Danone’s medical-nutrition business or Fresenius Kabi’s nutrition unit, Oberhuber said.