Nestlé's Revival Plan Starts to Pay Off
February 14 2019 - 6:34AM
Dow Jones News
By Saabira Chaudhuri
Nestlé SA reported a rise in full-year sales driven by improved
performance in the U.S. and China, early signs that Chief Executive
Mark Schneider's efforts to revive growth are starting to bear
fruit.
The maker of Nescafe coffee and KitKat chocolate on Thursday
said organic-sales growth -- a key measure that strips out currency
changes, acquisitions and divestments -- rose 3% last year. That
was in line with analysts' estimates and an improvement on the
previous year's pace of 2.4% -- the weakest level since Nestlé
started tracking the figure in the mid-1990s.
Investor cheered the figures, sending shares up nearly 3% in
early trading.
Nestlé, like its peers, has struggled in recent years with
fierce competition and changing consumer tastes. It has also faced
added pressure to boost returns from activist investor Dan
Loeb.
In response, Mr. Schneider has focused on key categories
including bottled water, coffee and pet food, which he says have
better growth potential. He's also sold noncore businesses like
U.S. confectionery and is exploring strategic options for the
skin-health unit. On Thursday, Nestlé said it is exploring a sale
of its European cold meats business, Herta, which generated sales
last year of about 680 million Swiss francs ($674 million).
Nestlé said a sharper focus on core products like coffee and pet
food boosted total sales by 2.1% to 91.44 billion francs in 2018.
U.S. sales rose 2.6%, while China sales were three times higher
than the year earlier. Net profit jumped 42% to 10.1 billion
francs, boosted by one-off facts like disposals. It said its
underlying trading operating profit margin rose by 0.5 percentage
point to 17%, putting it on track to hit its 2020 target of 17.5%
to 18.5%.
"Mark Schneider's efforts to shift the group's focus toward a
better balance between margin expansion and top-line growth are
slowly bearing fruit," said Robert Waldschmidt, an analysts at
Liberum, a brokerage.
Nestlé said its decision to explore the sale of its Herta
charcuterie unit reflected its increased focus on plant-based
offerings, which it said are growing much more strongly than meat
as consumers look to be more environmentally friendly while getting
enough protein. In 2017, Nestlé bought California-based Sweet
Earth, which makes plant proteins that can replace meat in meals
such as curries and stir fries.
"Within food products we see significantly better growth
opportunities for plant-based offerings," said Mr. Schneider. "That
whole focus on plant-based offerings is very much on trend, it will
be with us for years to come."
The Vevey, Switzerland-based company has also been pushing to
expand its coffee offerings, earlier this week announcing 24 new
coffee products under the Starbucks brand, including Nespresso
style capsules and whole bean and roast and ground coffee. Nestlé
last year purchased the rights to offer Starbucks coffee and tea in
grocery and retail stores for more than $7 billion.
For the year, Nestlé reported weaker pricing than the year
earlier although volumes -- typically seen by analysts as a
healthier approach to driving growth -- were strong. The company
said prices strengthened through the second half of the year as
compared with the first. Nestlé reported pricing growth of 0.5% and
volume growth of 2.5%, compared with pricing of 0.8% the year
earlier and 1.6% of volumes.
The company said for 2019 it expects sales growth to improve
while restructuring costs will hit about 700 million francs.
Nestlé also Thursday said it had nominated Dick Boer, former CEO
of grocer Ahold Delhaize, and Dinesh Paliwal, CEO of Harman
International -- a Stamford, Conn., auto-parts supplier acquired by
Samsung Electronics Co. in 2017 -- to its board as two existing
members step down. The company had been criticized by Mr. Loeb for
not having board members with food and drink experience.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
February 14, 2019 06:19 ET (11:19 GMT)
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