Selective acquisitions and divestments could affect
about 10% of total revenue, Schneider told investors as he unveiled his new
strategy to investors at a conference in London on Tuesday.
Nestlé, which has about 90 billion francs in sales, aims to focus on
faster-growing businesses such as coffee, bottled water and pet care as the
company tries to sell its US chocolate business in its first major retreat from
“We’ll need to trade out of some product areas and into others,” Schneider
said. “We’ll act decisively, and the US confectionery is a good example
For the first time, the Swiss owner of Nespresso coffee and Perrier water set a
fixed profitability target, aiming for an underlying trading margin in 2020
that’s as much as 2.5 percentage points higher than what it achieved last year.
That’s still shy of the level sought by activist investor Dan Loeb, whose hedge
fund firm Third Point bought a $3.5bn stake in Nestlé earlier this year.
Loeb declined to comment on Nestle’s plans. The shares traded 0.9% higher as of
11:12 in Zurich.
“The target is certainly attainable,” said Jean-Philippe Bertschy,
an analyst at Bank Vontobel. “While it will please some investors,
others – like Loeb – may be a bit disappointed.”
Nestlé’s adoption of a profit target marks a broader shift among the world’s
biggest food companies, after decades of prioritising scale.
Now, with many of their mass-market brands facing scepticism from consumers
seeking healthier and hipper alternatives, sales growth is slowing and
consumer-goods giants are under pressure from investors to cut costs and to
move into more profitable niches.
The CEO already announced a share buyback worth as much as $21bn), the planned
disposal of Nestlé’s US confectionery unit and acquisitions of coffee and
fresh-food businesses. The company has also been cutting jobs at its skincare
Schneider said Nestlé isn’t immediately changing its stance on its stake in
French cosmetics maker L’Oreal SA, which he described as a “fabulous”
investment, contributing 9% of the Swiss company’s earnings per share over the
The death of L’Oreal heiress Liliane Bettencourt last week prompted speculation
about the future of Nestlé’s 23% holding in the French cosmetics company.
Nestlé plans to keep its US frozen unit, and the ailing skin-health business
has a strategic fit, according to the CEO. He also said the company is trying
to revamp its Gerber baby nutrition division in the US and Yinlu food in China.
Nestlé has faced calls for a shakeup from Third Point, whose stake is equal to
about 1%, while rival Unilever fended off a takeover bid earlier this year from
Kraft Heinz, backed by buyout firm 3G Capital Partners.
Unilever is targeting an underlying operating margin of 20% by 2020, while
Danone aims to exceed 16% that year. That compares with Nestlé’s new goal for
an underlying trading margin of 17.% to 18.5% by 2020.
Last year Nestlé announced plans to improve its margin by at least 2 percentage
points by 2019 or 2020 through cost savings. The Nescafe maker’s unadjusted
trading operating margin has hovered between 15% and 15.3% during the past six
In July, Schneider said Nestle may expand restructuring beyond its original
plan. The company, which had 328 000 employees in 2016, has forecast
reorganisation costs will rise about 67% to 500 million francs this year.
“Virtually all of you underestimate the will to win at this company,” Schneider
said. “It’s hellbent on not losing its leadership position.”
Among other highlights:
• Company plans to accelerate three-year buyback program by adopting an even
pace on repurchases over the period; Nestlé previously said it would be
back-loaded to 2019 and 2020.
• Nestlé confirms target for mid-single-digit organic growth in 2020. Company
says it will keep consumer healthcare as additional growth platform to complement
food and beverages.