NSRGY Nestle SA (PK)

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 15, 2019).

Nestlé SA reported higher annual sales driven by improved performance in the U.S. and China, a sign that Chief Executive Mark Schneider's efforts to revive growth are gaining traction.

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% in 2018. That was in line with analysts' estimates and better than the previous year's growth of 2.4% -- which was the slowest pace since Nestlé started tracking the figure in the mid-1990s.

Nestlé, like its peers, has struggled in recent years with fierce competition and changing consumer tastes. The Swiss-based company has also faced pressure from activist investor Dan Loeb to boost its returns.

In response, Mr. Schneider has focused on such categories as bottled water, coffee and pet food that he says have better growth potential. He has also sold noncore businesses like U.S. confectionery and put the company's skin-health unit up for review. On Thursday, Nestlé said it is also 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% on the year, while China sales showed "mid single-digit organic growth, significantly higher than the prior year," the company said.

Net profit jumped 42% to 10.1 billion francs, aided by one-time effects such as asset sales. The company 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.

The company's shares rose 1.4% in Zurich trading.

Nestlé said its decision to explore the sale of its Herta charcuterie unit reflected its increased focus on plant-based foods. Demand for such products, it said, is growing much faster than for 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.

"That whole focus on plant-based offerings is very much on trend, it will be with us for years to come," said Mr. Schneider, who became CEO in 2017. said.

The company, which is based in Vevey, Switzerland, has also been pushing to expand its coffee offerings. Earlier this week it announced 24 new coffee products under the Starbucks brand, including Nespresso style capsules and whole bean and roast and ground coffee. Nestlé last year paid more than $7 billion for the rights to sell Starbucks coffee and tea in grocery and retail stores.

Nestlé said its pricing picked up strength in the second half of last year, though overall it lagged behind 2017. Meanwhile, sales volumes -- typically seen by analysts as a sturdier approach to driving growth -- were strong. For 2018, It reported pricing growth of 0.5% and volume growth of 2.5%, compared with 0.8% and 1.6%, respectively, in the preceding year.

The company said for 2019 it expects sales growth to improve while restructuring costs will total about 700 million francs.

Nestlé also said Thursday that it had nominated to its board Dick Boer, former chief of grocer Ahold Delhaize, and Dinesh Paliwal, CEO of Harman International, a U.S. auto-parts supplier acquired by Samsung Electronics Co. in 2017. They would replace two current members who are stepping 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 15, 2019 02:47 ET (07:47 GMT)

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