New Nestlé boss tackles a daunting task
Schneider says it will take years for the company to return to past growth
NESTLÉ’S new chief executive, Mark Schneider, has said it would take years to return to the growth rates targeted by his predecessors and that he would consider exiting under-performing businesses if he could not fix them.
The world’s largest food company forecast revenue would increase 2 percent to 4 percent on an organic basis this year, below a long-held goal of 5 percent to 6 percent.
The stock fell as much as 2.1 percent as Schneider yesterday also said that restructuring costs would rise to about SFr500 million (R6.47 billion) in 2017, putting pressure on profitability.
It has taken less than two months in the job for Schneider to modify the annual growth forecasts Nestlé has held on to for more than a decade.
Revenue growth was 3.2 percent in 2016, missing analysts’ estimates and the slowest in at least a decade, illustrating the long list of challenges facing the new chief.
Those include deflation in Europe, declining sales in China, inflation in Brazil and Russia, and increasing competition in the US chocolate market.
“It is a kind of a back-to-reality,” Pierre Tegner, an analyst at Natixis, said in a note. “The outlook shows that there is a lot to do.”
In 2005, Nestlé began targeting 5 percent to 6 percent average annual sales growth and improvement in the margin, excluding currency shifts.
Schneider said that range is too narrow for coming years, without saying whether the goals, dubbed the “Nestlé Model”, are being retracted.
He said the new guidance is “roughly” the same thing. The food company forecast this year’s margin will be little changed due to the restructuring.
It is “perhaps the implicit official ‘death’ of the Nestlé Model”, Andrew Wood, an analyst at Sanford C Bernstein, wrote in a note.
Schneider, the first outsider Nestlé has picked for the position in almost a century, said that he saw acquisition opportunities in the health, food and beverage industries.
However, it is not the time to make “big-ticket mergers and acquisitions” as valuations of consumer-goods companies are “lofty” amid the present low interest rates and the rising stock markets, he said.
Nestlé will first attempt to fix under-performing businesses such as the Chinese Yinlu food business, and sell those that are non-strategic if it’s not possible to return them to growth, said Schneider, a veteran of the healthcare industry.
Nestlé’s 23.2 percent stake in L’Oreal is a “highly strategic” asset and there is no short-term urgency to alter the relationship, he added.
Analysts have speculated for years that Nestlé could sell the stake to fund acquisitions.
“A turnaround and a durable earnings inflection will take longer than most expect,” said Robert Waldschmidt, an analyst at Liberum in London.
“Schneider will first attack the weakness in the core portfolio. Disposals will likely precede larger acquisitions.”
Restructuring will focus on costs that are “non-consumer-facing”, such as administration and improving factory networks, Schneider said. – Bloomberg