Nestle takes wraps off CHF 2.5bn cost-cutting plan

19th Nov 2024 09:21

(Sharecast News) - Nestlé unveiled an ambitious cost-cutting initiative and reduced its profit outlook on Tuesday, as new chief executive Laurent Freixe charted a turnaround strategy for the world's largest food company.

The Swiss consumer goods giant said it planned to cut costs by CHF 2.5bn (£2.24bn) by 2027, aiming to redirect funds into increased advertising and marketing efforts to reignite growth.

Freixe, who took the helm in September, lowered Nestlé's medium-term profit margin guidance to 17%, down from the previous target of 17.5% to 18.5% set by his predecessor Mark Schneider.

The company also reaffirmed its medium-term organic sales growth target of 4%, despite lowering its 2024 sales growth forecast to about 2% earlier in the year.

A key element of Freixe's strategy was the separation of Nestlé's European bottled water and premium drinks division into a standalone global business starting January.

The new entity would be managed independently, with strategic reviews and potential partnerships on the table.

Nestlé was facing challenges in rebuilding sales volumes amid persistent consumer resistance to rising prices.

The company's shares had dropped over a fifth this year, lagging behind competitors such as Unilever and Danone.

Operational setbacks, including IT system issues and a water purification scandal involving brands like Vittel and Perrier, compounded difficulties.

Freixe's plan included a 9% increase in advertising and marketing investment by 2025, aiming to strengthen the appeal of brands such as KitKat, Nescafé and Cheerios.

"We will now invest further in our brands and growth platforms to unlock the full potential of our products for our consumers and customers," Freixe said.

Analysts were looking for more insights into Nestlé's recovery strategy during its coming capital markets day, particularly how it intended to address slowing growth in key categories like coffee and pet products, which traditionally drove much of its revenue.

"I am confident that we can deliver superior, sustainable, and profitable growth and gain market share, while transforming Nestlé for long-term success," Freixe added.

At 1028 CET (0928 GMT), shares in Nestle were down 1.46% in Zurich at CHF 77.04.

Reporting by Josh White for Sharecast.com.