By Ademola Badmus with agency report
Nestlé said a key measure of sales growth weakened to its slowest pace in decades, underscoring the challenge facing the Swiss consumer goods giant as it tries to reposition itself as a nimble provider of healthy food and drinks.
Nestlé also said it is considering selling its Gerber Life Insurance business, continuing a string of changes to its sprawling portfolio, and said it doesn’t plan to raise its stake in cosmetics giant L’Oréal. Nestlé didn’t say whether it would consider reducing its stake.
The chocolate maker said organic growth, which strips out the effects of currency changes, acquisitions, and divestments, came in at 2.4 percent in 2017. That was below last year’s pace of 3.2 percent and the weakest since at least the mid-1990s when Nestlé started tracking that indicator. Analysts had expected 2.6 percent growth. A worrying sign for the company is that sales growth was weak at the end of last year, a time when the global economy seemed to be perking up.
“Sales growth in Europe and Asia was encouraging while North America and Brazil continued to see a challenging environment,” said Mark Schneider, its chief executive officer.
Total sales were 89.8 billion Swiss francs ($96.9 billion), up 0.4 percent from 2016 and slightly below analyst forecasts of 90 billion francs. Its net profit was 7.2 billion francs, down 15.8 percent from 2016 and well below expectations.
The earnings report may raise pressure on Nestlé from investors to take more dramatic steps to improve its financial performance. Daniel Loeb’s Third Point LLC, an activist investor, has been pressing for bold steps for many months, and while Nestlé has made many changes, Loeb has signaled he wants them to go further.
The full-year results were the first for Schneider, who took the helm as CEO at the start of last year after running a German health-care company. Nestlé missed a longstanding target of five percent to six percent organic growth for four-straight years through 2016, and one of Schneider’s first big moves was to ditch that target one year ago.
Like other consumer goods companies, Nestlé has struggled with a mix of weaker growth in the world economy, deflationary pressures that made it hard to raise prices and aging populations. These have coincided with changing consumer tastes toward locally grown, organic food and away from mass-produced prepared meals that have long been a staple for the maker of Stouffer’s frozen dishes and Lean Cuisine.
Last year was an active one for Schneider, the first CEO chosen from outside Nestlé’s ranks in nearly a century. Last summer, facing pressure from Loeb to improve its financial performance, Nestlé announced a 20 billion franc share buyback and said it would orient its capital spending toward high-growth parts of its business, like pet care and coffee. It also set a formal profit-margin target.
It also made relatively small-scale U.S. acquisitions in areas outside its longstanding bread and butter of mass-produced packaged foods, including plant-based food maker Sweet Earth and a majority stake in premium coffee chain Blue Bottle.
It expanded its push into consumer healthcare by acquiring a Canadian vitamin maker.
Nestlé’s highest-profile move has been the sale last month of its U.S. candy business that includes Butterfinger and Baby Ruth brands to Italian candymaker Ferrero International for $2.8 billion.
The life-insurance business that Nestlé is putting up for sale was part of its acquisition of Gerber from Novartis in 2007, and the unit generated 2017 sales of 840 million francs. Nestlé said it was “fully committed” to Gerber’s baby-food business.
Although many of these steps mirrored Loeb’s recommendations, the activist investor has signaled he wants Nestlé to consider more changes, including selling its skin-health business and its large stake in cosmetics giant L’Oréal.
Nestlé also said it expects the recently enacted U.S. tax overhaul to shave about 300 million francs a year from its U.S. corporate-tax expenses.
