Nestlé lowered its medium-term profit outlook today while outlining plans for a major cost-cutting drive as part of its new Chief Executive’s strategy to boost performance after a difficult period for the world’s biggest food company.
The Swiss firm’s share price has fallen more than 20% this year following a series of earnings and sales growth misses alongside several operational mishaps. Like many other consumer goods companies, Nestlé has struggled to restore sales volume growth after a prolonged period of price hikes led to consumers seeking cheaper alternatives to its range of well-known brands. Analysts have also suggested that Nestlé has cut its marketing and innovation budgets too deeply in recent years.
At a Capital Markets event today entitled ‘Accelerating Nestlé, Laurent Freixe revealed that the company was reducing its medium-term profit margin guidance to 17%, from the 17.5% to 18.5% target set by his predecessor Mark Schneider, who stepped down in the summer.
The group also outlined its “action plan” to boost growth, including upping investment in advertising and marketing to 9% of sales by the end of 2025. Meanwhile, it is aiming to cut costs by SFr2.5bn (€2.7bn) by the end of 2027 to fund more investment in “winning brands and growth platforms, more focused innovation activities to drive greater impact, and systematically addressing underperformers”.
In addition, Nestlé announced the separation of its European bottled water division. This will become a standalone business under the leadership of Muriel Lienau, Head of Nestlé Waters Europe, as of 1 January. It will then explore “partnership opportunities” to enable Nestlé’s brands to “achieve their full potential”.
Freixe, a Nestlé veteran who took over in September, said: “Our action plan will also improve the way we operate, making us more efficient, responsive and agile. This will allow us to deliver value for all our stakeholders. I am confident that we can deliver superior, sustainable and profitable growth and gain market share, while transforming Nestlé for long-term success.”
Last month, Freixe announced an overhaul of the group’s senior leadership and operating structure. He also lowered Nestlé’s sales growth guidance for the year to about 2%, from the 3% forecast in July, as a result of persistent consumer weakness. The group today maintained its medium-term organic sales growth target of 4%, with it expecting to see an improvement from 2025.
NAM Implications:
- The key issue has been consumers switching to own label equivalent…
- …following the increase in size of brand premium caused by price hikes.
- The quick solution has to be cost-cutting in terms of redefining core and selling off resulting non-core.
- Meaning opportunities for rivals picking up discarded brands…
- …and increased competition from Nestlé’s core brands.
