Nestlé has boosted organic sales growth for the first time in seven years, driven by a recovery in China and the US, and new healthier products.
Like other packaged foodmakers, Nestlé has been struggling to boost demand as consumers’ tastes shift to healthier, more natural, local foods.
To cope, chief executive Mark Schneider, who joined Nestlé two years ago as its first outside leader since 1922, has been overhauling its products via sales and acquisitions. He announced on Thursday the latest business to go on the block: Herta, a cold cuts and hot dog brand.
He said the decision was made because plant-based protein products were growing faster than meat. “The consumer has moved on,” he said. “The numbers told us that the focus should be elsewhere.”
The maker of Nescafé, KitKat chocolate and Gerber baby food on Thursday reported 3.7 per cent organic sales growth in the fourth quarter, slightly ahead of the 3.6 per cent expected by analysts, according to Bloomberg.
For the full year it recorded 3 per cent organic sales growth, with the biggest gains coming in the US and China, Nestlé’s two largest markets. That is up from 2.4 per cent in 2017. Demand for infant nutrition and confectionery products, including KitKat bars, underpinned the performance.
Organic sales growth strips out the effect of currency swings and acquisitions or disposals, so is closely followed among investors.
Free cash flow generation improved by 15 per cent to reach SFr10.8bn, allowing Nestlé to raise its dividend by SFr0.10 to SFr2.45 and accelerate its previously announced share buyback by six months.
The Switzerland-based group has been selling assets and launching new products in an effort to revive growth and improve margins. Key to the strategy is shifting the product portfolio to healthier food, often marketed with an explicit wellness message.
But Mr Schneider has to contend with pressure from activist investor Third Point, which owns a 1.25 per cent stake and has argued that his efforts are not fast or bold enough to improve performance at the world’s largest food manufacturer.
RBC analyst James Edwardes Jones said Mr Schneider was doing “sensible things” that were improving Nestlé’s prospects.
“He’s sharpening up asset allocation, taking a more assertive stance on margin growth, and trying to shift Nestlé’s culture,” he said “It’s heading in the right way, little by little.”
Nestlé’s shares rose 3 per cent in morning trade, ahead of a 0.7 per cent rise for the Swiss market index.
For this year, Nestlé said organic sales growth and operating profit margins would improve again, and it confirmed that it was on track to deliver on Mr Schneider’s three-year turnround plan by the end of 2020.
Mr Schneider has already sold off several businesses, including the Gerber Life Insurance unit for €1.3bn in September and its US confectionery arm for $2.8bn in January.
It is also in the process of reviewing bids for its skin health business, which could be valued at as much as SFr7bn. Mr Schneider said it had attracted “very strong interest” from potential buyers.
Nestlé has also bought assets in what it sees as more promising categories, such as the acquisition of vitamin maker Atrium Innovations for $2.3bn and a licensing deal with Starbucks for $7.15bn that will see it sell branded coffee pods in grocery stores outside the US.
Third Point has in the past urged Nestlé to speed up disposals to offload products like pizza and ice cream that do not fit in with contemporary wellness and healthy eating trends. The hedge fund has also called on Nestlé to sell its 23 per cent stake in the French cosmetics group L’Oréal.
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