Nestle cuts forecast, shakes up executive board after sales disappoint

17th Oct 2024 08:55

(Sharecast News) - Nestle is to undergo a major organisational overhaul, the Swiss food giant confirmed on Thursday, as it cut sales targets in the face of persistently weak consumer demand.

New chief executive Laurent Freixe said the changes would help Nestle "sharpen" its focus on consumers, speed-up decision making and strengthen momentum behind global initiatives.

He also trimmed full-year guidance, with organic sales growth now expected to be 2%, down from July's forecast for 3%.

Nestle - which owns KitKat, Nespresso, Haagen-Dazs and Purina pet food, among many others - said in February that sales growth was expected to be 4% in 2024.

Annual underlying earnings per share growth, meanwhile, is expected to be broadly flat in constant currency.

Freixe, who took over last month following the sudden departure of long-standing incumbent Mark Schneider, said: "Consumer demand has weakened in recent months, and we expect the demand environment to remain soft.

"Given this outlook, and our further actions to reduce customer inventories in the fourth quarter, we have updated our full-year guidance."

In the nine months to September end, total reported sales were CHF67.15bn (£59.78bn), a 2.4% fall on the same period a year previously.

Organic sales growth was 2%, similar to the 2.1% achieved in the first half. Analysts had expected growth of 2.5%.

Real internal growth, or sales volumes, was just 0.5%. The group said RIG had been impacted by "soft consumer demand and consumer hesitancy towards global brands, linked to geopolitical tensions".

The organisational changes, meanwhile, will see its regional markets reduced to three core zones. Latin America and North America will become one region, Zone Americas (AMS), while Zone Greater China is being subsumed into Zone Asia, Oceania and Africa (AOA).

From 2025, Nestle's reporting will comprise of just five segments: Zone Europe, AMS, AOA, Nestle Health Science, and Nespresso. The executive board has also been slimmed down.

Jefferies said: "Post the sudden chief executive change, consensus anticipated a risk to both third-quarter and 2024 full-year delivery. But this update is notably below even revised expectations. We estimate consensus will cut full-year EPS another 3% to 4%.

"Attention will switch to mid-term ambitions, expected at the November capital markets day. That threatens a reality check for Nestle and also peers. Sales growth of 4% to 6% per year and margin uptick might be the 'right' answer for current valuations, but increasingly look about 10 years out of date."

Russ Mould, investment director at AJ Bell, said the business was being "proactive in the fact of a difficult market backdrop".

He continued: "Freixe needs to demonstrate he can find the right balance between protecting margins and growing sales. He also needs to show he can revive the company's product portfolio, which was seen in some quarters as having become a bit tired."