By Saabira Chaudhuri
After decades of trying to push into healthier foods, Nestlé SA
is elevating a new chief executive -- plucked straight from the
health-care industry -- to kick its effort into higher gear.
Ulf Mark Schneider, 51 years old, takes the reins at Nestlé on
Jan. 1. He spent the past 13 years heading German health-care giant
Fresenius SE, which runs hospitals, makes medical equipment and
supplies drugs and nutritional products.
Nestlé, the world's largest packaged-food company by revenue, is
tapping that experience as it works to reinvigorate its drive to
diversify away from the slower-growing food and beverage products
-- like Stouffer's frozen TV dinners, KitKat chocolate bars and
Nescafé instant coffee -- that have long been its mainstay.
PepsiCo Inc., General Mills Inc., Kraft Heinz Co. and others
have pumped money into creating healthier products, or
reformulating existing ones to make them less bad for you, with
mixed results. So has Nestlé, but the company has simultaneously
taken a more radical path: For years, it has also been investing in
a bevy of health-care firms in an effort to profit from the
intersection of food and pharmaceuticals.
Nestlé, which declined to comment for this article, also
declined to make Mr. Schneider available to comment.
In September, Nestlé agreed to buy a British maker of a device
to treat dysphagia, a swallowing disorder. Earlier in the year, it
teamed up with a U.S. biotech to develop products aimed at
restoring bacterial balance in the digestive system. It is also
expanding aggressively into "medical foods," intended to help
prevent, treat or manage conditions like metabolism issues, cancer
and obesity.
The effort has stretched back decades -- Nestlé made its first
health-care-nutrition investment in 1986 -- but it has gained more
prominence in recent years. In 2010, Nestlé promised to "be a
pioneer in the new industry that we are helping to shape in the
space between a fast-moving consumer-goods company and a pharma
company." It created a separate health-science division the next
year and since has made a series of acquisitions aimed at beefing
it up. But so far, these haven't delivered significant sales
increases.
Last year, Nestlé health-science revenue was about 2 billion
Swiss francs ($1.95 billion), or just 2.25% of overall revenue. The
unit absorbed Nestlé's prior health-care-nutrition business, which
had sales of 1.6 billion francs in 2009, but is distinct from the
much-larger general nutrition business.
Despite an array of bets in fields like oncology and depression,
the health-science unit has no blockbuster products. Its biggest
revenue generator is Boost, a flavored protein drink, rather than
any of its disease-focused products, according to a person familiar
with the matter.
Critics have said Nestlé doesn't disclose enough about the
business and its trajectory. "This is something of a black box to
us," said RBC Capital Markets analyst James Edwardes Jones.
Shares of Nestlé have declined 1.7% so far this year.
Nestlé's elevation of a health-care veteran, in Mr. Schneider,
could help. He will take direct control of Nestlé's health-sciences
and skin-health units.
His financial record at Fresenius -- before becoming CEO, he was
CFO of its medical-care business -- also could help Nestlé win over
investors long accustomed to poor communication by management and
thin margins.
Nestlé recently warned it would miss its own sales-growth target
for the fourth straight year.
The company's earnings-before-interest-and-tax margin is
forecast to rise by just 0.57 percentage points between fiscal 2016
and 2018, compared with estimates of 4.58% for Kraft Heinz, 2.43%
for Mondelez International Inc. and 1.56% for Kellogg Co.,
according to Jefferies LLC.
Investors hope this will change under Mr. Schneider who at
Fresenius was known for his deal making and cost-cutting. Fresenius
shares rose 1,246% during his CEO tenure. He is credited with
boosting revenue through geographic expansion and a number of big
acquisitions. Mr. Schneider "really knows the details and can
communicate and explain it all in an easy-to-understand way," said
Marcus Luttgen, a portfolio manager at Alecta Pension Insurance
Mutual, which holds shares in Fresenius and Nestlé.
Mr. Schneider has been working at the company since September
learning the ropes. He is the youngest pick for the top job in 50
years and the first outsider CEO since 1922.
Mr. Schneider has already been suggesting new cost-savings
initiatives, according to a person familiar with the plans, and
pushing to accelerate existing cost-cutting measures -- like
centralizing companywide purchasing.
But Mr. Schneider lacks experience dealing with food and
beverages, still Nestlé's biggest businesses. He will be stepping
up to manage a company significantly bigger than his old firm, with
almost twice as many markets. Nestlé has 335,000 employees and
sells products in 189 countries, compared with Fresenius's 220,000
employees and operations in 100 countries.
"Nestlé has some material structural growth problems on things
like U.S. prepared meals, ice cream, coffee and confectionery that
have manifested themselves in its consistent guidance misses," said
Jefferies analyst Martin Deboo. Mr. Schneider, he said, will
jump-start growth only by "moving the needle on brands like Nescafé
and Maggi, not by repositioning Nestlé as a health company."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
December 30, 2016 05:44 ET (10:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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