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Nestlé has lowered its medium-term profit outlook and announced a cost-cutting drive as new boss Laurent Freixe set out his plan to turn around the world’s biggest food company.
Freixe has reduced the company’s medium-term profit margin guidance to 17 per cent, from the 17.5 to 18.5 per cent target set by his predecessor Mark Schneider, who stepped down this summer.
Ahead of its capital markets day, the Swiss group unveiled an “action plan”, including boosting advertising spending by 9 per cent by the end of next year and cutting costs by SFr2.5bn ($2.8bn) by 2027 to fund new investment.
In addition, Nestlé announced the separation of its European bottled water business.
“Our action plan will also improve the way we operate, making us more efficient, responsive and agile,” said Freixe, a Nestlé veteran who took over in September. “This will allow us to deliver value for all our stakeholders.”
Like many consumer goods companies, Nestlé has struggled to build back sales volume growth following a period of record inflation as consumers push back against the soaring cost of everyday goods.
The Swiss company has underperformed European peers such as Unilever and Danone.
Nestlé’s share price has fallen more than 20 per cent this year following a series of earnings misses and operational mishaps, including the botched integration of an IT system and a water purification scandal related to its French water brands such as Vittel and Perrier. Shares were steady as the market opened on Tuesday.
The company announced that as part of its plan to “drive operational performance”, its water business would be split off as a standalone from January next year. Nestlé said it was considering its strategy for the business and would explore “partnership opportunities”.
David Hayes, analyst at Jefferies, said he expected Nestlé to identify the root of the underperformance in the past few years, and whether the group had a “cultural issue” at the capital markets day.
Hayes said he was also looking to hear how Nestlé planned to recover growth when coffee and pet sales growth were slowing down. Coffee and pet products have historically contributed up to 60 per cent of the group’s top line growth.
In his first move as chief executive Freixe, who was previously head of Nestlé’s Latin America business, in October lowered Nestlé’s sales growth guidance for the year to about 2 per cent, from the 3 per cent forecast in July, as a result of persistent consumer weakness.
The group maintained its medium-term organic sales growth target of 4 per cent.
