Nestle tries to fix error with plan to sell allergy division
Nestle may sell the Palforzia peanut allergy business to help meet new profit and margin goals in the coming years, as CEO Mark Schneider fights to boost sales growth and profitability in an inflationary environment.
Schneider set financial targets on Tuesday ahead of an investor meeting in Barcelona. Underlying earnings per share should rise 6%-10% annually in constant currency to the end of 2025, the maker of Nespresso capsules and DiGiorno pizzas said. He also gave margin targets for those years that exceed analysts’ estimates.
Nestle is considering options for Palforzia just two years after buying the maker of the drug in a $2.6bn deal. Schneider told analysts Nestle is trying to correct mistakes quickly and aims for consistent results in the coming years despite the volatile market. After Palforzia’s marketing investments weighed down the health science business’s profitability, the company said going forward, it will sharpen the focus of its health science unit on consumer products and medical nutrition.
Palforzia is the first and only oral treatment to help reduce the severity of allergic reactions to peanuts that has approval from the US Food and Drug Administration (FDA). The Swiss firm expected the treatment could become a blockbuster with sales of $1bn, but its introduction in the US was slower than expected due to the Covid-19 pandemic.
Schneider said he realised the decision on Palforzia might surprise some investors.
“We did have high hopes for this business,” the CEO said. Instead of a blockbuster, Palforzia looks more like a niche therapy, he added.
After pandemic restrictions were lifted, it became apparent that fewer than expected patients would take up the drug because of the significant amount of time they have to spend visiting the doctor — time that allergists are not paid for.
Nestle shares fell 0.5% at 9.08am in Zurich. Market value has increased by Sf86bn ($91bn) since Schneider started leading Nestle in 2017.
Nestle said it would keep looking for acquisition targets in high-growth areas, adding that the net annual return on acquisitions since 2018 is between 11% and 13%, with a large majority of deals performing in line with or better than their business plans.
Schneider said the vitamin, mineral and supplement sector offers consolidation opportunities.
The company raised its sales forecast for 2022 to organic growth between 8% and 8.5%. The previous guidance was about 8%. The company forecast that its underlying trading operating margin should grow to between 17.5% and 18.5% by 2025, up from about 17% in 2022.
Schneider said he is fully committed to his job and “here for the long term”./Bloomberg