Nestle to restructure after it misses nine-month organic sales forecast

In July, Nestle had said it expected full-year organic sales growth of at least 3 per cent and that its UTOP margin for 2024 would grow moderately

Nestle is revamping senior leadership and its operating structure, the food giant said on Thursday, as it cut its full-year sales outlook following weaker than expected nine-month underlying sales growth.
 

The packaged food industry has in recent years struggled with soaring costs as everything from sunflower oil and shipping to packaging, grain and energy became more expensive during the pandemic and after Russia's full-scale invasion of Ukraine.

This year, as inflation has eased, many of Nestle's competitors have slowed price increases, hoping to woo back shoppers who turned to cheaper products.
 

The Swiss group, however, did not ease up as quickly and for years cut too deeply into marketing and innovation budgets, analysts said. CEO Mark Schneider was ousted in August following several quarters of weak sales volumes.

 

Nestle said it now expects 2024 organic sales growth to be around 2% and an underlying trading operating profit (UTOP) margin of about 17%. In July, it cut its organic sales growth forecast to at least 3% and saw a moderate increase in its UTOP margin from 2023's 17.3%.
 

"A very painful reset for Nestle, unprecedented in recent history," Vontobel analyst Jean-Philippe Bertschy said. "It is hard to understand how the company could have expected sales growth of around 4% until July."
 

"For a super-tanker like Nestle, the miss in just a few months is enormous."
 

New CEO Laurent Freixe said he planned to reduce the size of Nestle's executive board, merge the company's Latin America and North America units, and merge its Greater China and Asia, Oceania and Africa businesses, among other changes.
 

The company last embarked on a restructuring in January 2022, when it was organised into five geographic regions.
 

Freixe's challenges include reviving innovation and marketing, and winning back investor confidence in core brands, which include Nescafe coffee and Kit-Kat wafer snacks.
 

WEAKER CONSUMER
 

Nine-month organic sales for 2024, which exclude the impact of currency movements and acquisitions, rose 2%, the maker of Maggi stock cubes said. Analysts had, on average, expected growth of 2.5%.
 

"Consumer demand has weakened in recent months, and we expect the demand environment to remain soft," Freixe said.

Nestle's nine-month price increase of 1.6% was behind analysts' average estimate of 1.7%. Real internal growth - or sales volumes - rose 0.5% versus an expected 0.8% increase.
 

By comparison, analysts expect rival Unilever to report a 1% increase in third-quarter underlying prices and 3.2% underlying sales volume growth when it reports next week, according to a company-provided consensus.
 

"(Our competitors') input cost dynamics are very different," Nestle Chief Financial Officer Anna Manz told journalists on a call. "It's a much easier pricing environment for those competitors."
 

Manz pointed to coffee and cocoa, whose prices have touched repeated record highs in the past two years.

Nestle said volumes were also held back by retailers and distributors reducing stocks because people aren't buying as much, particularly in countries with weaker economies in Latin America.