Nestle’s New CEO Kicks Off Overhaul to Reverse Sagging Growth

This content was published on October 17, 2024 - 13:23

4 minutes

(Bloomberg) — Nestle SA Chief Executive Officer Laurent Freixe is streamlining management at the world’s biggest foodmaker just six weeks into the job, as sales growth slows to the lowest in decades.

A 38-year company veteran, Freixe took over last month after the sudden ouster of Mark Schneider, who spent almost eight years at the top. Freixe’s first move was to recognize what some analysts had already foreseen, that the company’s growth target for this year was unrealistic.

The maker of Nescafe coffee and Purina pet food cut the outlook for organic sales in 2024 to around 2% on Thursday from a previous forecast of at least 3%. Growth of 2% would be the lowest annual rate since at least the turn of the century.

The CEO is attempting to restore investor confidence after recent stumbles, including a previous cut to the sales goal in July. Under Schneider, Nestle relied on higher prices to drive sales during the inflationary period coming out of the pandemic, prompting shoppers to trade down to cheaper off-brand items. It’s since had trouble luring them back.

“For a supertanker like Nestle, the miss in just a few months is enormous,” Vontobel analyst Jean-Philippe Bertschy said in a note. The priority for new management is to bring Nestle back to its roots, a huge task that will take time, he added.

Nestle shares initially dropped on the news, but rebounded after Chief Financial Officer Anna Manz told analysts not to expect a steep decline in profitability for 2025, even as the foodmaker increases investment to accelerate growth. The stock climbed as much as 2.7%, trimming the decline this year to 12%.

Freixe told analysts that he’s reviewing the product portfolio, raising the prospect of potential asset disposals. He also announced a raft of internal changes, including a slimmed down and younger executive board and fewer geographical zones to speed decision making.

The Latin America and North America regions will combine and be led by Steve Presley, currently CEO of North America. Going forward, Nestle will report results for three, instead of five, geographic zones, along with the health science and Nespresso units.

North America

Growth in North America was the weakest in the first nine months of the year, with organic sales contracting 0.3%. Meantime, high interest rates in Latin America mean shops are reducing how much inventory they want to hold, Manz said on a call with journalists.

As an insider who spent his career climbing Nestle’s ranks with a focus on functions like marketing and selling, 62-year-old Freixe brings a deeper knowledge of the company to the top role than Schneider, an outsider who previously ran a health-care company.

Nestle also trimmed its 2024 targets for underlying earnings per share and profitability on Thursday. Underlying trading operating profit margin is now expected to be around 17%, rather than a modest improvement on last year’s 17.3%.

Manz said that it’s likely that investments will lead to a “slightly lower” margin in 2025 than 2024. The comments reassured investors fearing worse.

“I’ve been asked whether that will be a sort of 100 basis point to 200 basis point margin reduction versus 2024,” she said. “No, it will not be of that order of magnitude. It will be of a lower order of magnitude.”

The company is expected to give an update on its 2025 guidance at an investor seminar on Nov. 19.

–With assistance from Lisa Pham and Allegra Catelli.

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