Nestle's new Chief Executive Officer Mark Schneider said it will take years to return to the growth rates targeted by his predecessors as the world's largest food company aims to fix underperforming businesses and trim its factory network.
The KitKat-maker forecast revenue will increase 2 percent to 4 percent this year, below a long-held goal of 5 percent to 6 percent. Schneider also said Thursday that restructuring costs will rise to about $498 million in 2017, putting pressure on profitability and sending the shares down as much as 2.3 percent.
It's taken less than two months in the job for Schneider to modify the annual growth forecasts Nestle has held on to for more than a decade. Revenue growth was 3.2 percent in 2016, missing analysts' estimates and the slowest in at least a decade, illustrating the long list of challenges facing the new CEO. Those include deflation in Europe, declining sales in China, inflation in Brazil and Russia, and increasing competition in the U.S. chocolate market.
"It is a kind of a back-to-reality," Pierre Tegner, an analyst at Natixis, said in a note. "The outlook shows that there is a lot to do."
Since 2005, Nestle has targeted 5 percent to 6 percent average annual sales growth and improvement in the margin, excluding currency shifts. Schneider said that range is too narrow for coming years, without saying whether the goals, dubbed the "Nestle Model," are being retracted. He said the new guidance is "roughly" the same thing. The food company forecast this year's margin will be little changed because of the restructuring.
It's "perhaps, the implicit official 'death' of the Nestle Model," Andrew Wood, an analyst at Sanford C. Bernstein, wrote in a note.
Schneider, the first outsider Nestle has picked to be CEO in almost a century, said he sees acquisition opportunities in the health, food and beverage industries, speaking in an interview on Bloomberg Television. However, Nestle isn't working on any major transactions because valuations of consumer-goods companies are "lofty" amid low interest rates and rising stock markets, he said.
Nestle will first attempt to fix underperforming businesses such as the Chinese Yinlu food business, and only later those that can't be fixed or are no longer strategic, said Schneider, a veteran of the health care industry. Nestle's 23.2 percent stake in L'Oreal is a "highly strategic" asset and there is no short-term urgency to alter the relationship, he added. Analysts have speculated for years that Nestle could sell the stake to fund acquisitions.
"We're in a period of an unprecedented fast-moving change in the consumer-goods industry," the CEO said. "Speed of execution, getting stuff done and implemented, recognizing new customer trends or efficiency trends and not kicking the can down the road, that's key."
Coffee, pet food and bottled water are businesses Schneider said he plans to devote more resources to, and there's "no flagrant contradiction" in holding onto chocolate businesses amid the health push, Schneider also said. Nestle also plans to invest more in developing markets, where it got 42 percent of its sales last year.
"In terms of above-average growth, everything related to Asia-Pacific and emerging markets is still my long-term bet," Schneider said.
Business on 02/17/2017