FoodNestlé does not grow as well as expected and lowers annual targets
SDA
17.10.2024 - 07:03
Nestlé did not grow fast enough in the first nine months to achieve its previous growth targets for the year as a whole. The new boss Laurent Freixe is now cutting the targets. He is also putting his stamp on the Group by restructuring the management.
17.10.2024, 07:03
17.10.2024, 13:01
SDA
Nestlé generated total sales of 67.1 billion Swiss francs in the first nine months, as the world's largest food company announced on Thursday. This corresponds to organic growth of 2.0 percent.
Former CEO Mark Schneider had recently emphasized that Nestlé would grow organically by "over 3 percent" for the year as a whole. But that seems too optimistic. Laurent Freixe, who took over as CEO in August after a long career at the food multinational, has now rejected these false hopes and lowered expectations for the year as a whole.
"Consumer demand has weakened in recent months and we expect this environment to remain subdued," Freixe is quoted as saying in the press release. "In light of this and our further measures to reduce customer inventories in the fourth quarter, we have updated our outlook for the full year," said the CEO.
Nestlé will probably only grow organically by "around 2.0 percent" in 2024, according to the press release. Analysts had expected Freixe to lower the annual guidance. The operating margin is also likely to suffer. According to the company boss, it will still be "around 17 percent". Nestlé had previously predicted a slight improvement for the current year compared to the previous year's margin of 17.3 percent.
Declining demand depresses sales volume
Price increases of 1.6 percent and a higher sales volume (the so-called Real Internal Growth, RIG) of 0.5 percent contributed to the organic growth of 2.0 percent. In the third quarter, Nestlé increased prices by 0.6 percent, while sales volumes and mix effects increased by 1.3 percent. "Looking at growth, volume and mix remains stable and positive in both the nine-month period and the third quarter. However, the environment remains challenging," Freixe said on a media call.
Price adjustments would now be further normalized after having been raised "unprecedentedly" in the previous two years. One of Nestlé's reasons for the fact that sales volumes did not increase more strongly was the decline in consumer demand. The conflict in the Middle East was also an ongoing issue. Consumers were reluctant to buy global brands "in connection with the geopolitical tensions", according to the press release.
Customers have also reduced their stocks, according to the press release. However, this was not about individual categories that were not in demand, explained CFO Anna Manz. Rather, retail customers in some regions, particularly in the USA and Latin America, had generally kept their costs low in view of the gloomy consumer sentiment and thus reduced their inventories instead of increasing them.
Bestsellers continue to grow
In terms of the individual product categories, the company's usual "stars" were once again in demand. The coffee category, which includes the Nescafé, Starbucks and Nespresso coffee brands, made the largest contribution to overall growth with organic growth in the mid-single-digit range.
Pet food with the Purina brand achieved low single-digit growth, according to the press release. Confectionery with brands such as Kitkat grew in the mid single-digit range.
Nestlé Health Science, the recently weakening business with health products and nutritional supplements, grew again in the low single-digit range. It had been struggling with IT integration problems. In the third quarter, organic sales growth was now even in the double-digit range. "The recovery is on track," it says.
By contrast, Nestlé recorded an organic decline in sales in dairy products and in the culinary business, with coffee whiteners and frozen products in particular being avoided.
Restructuring of the Executive Board
Freixe now wants to lead Nestlé back to success by restructuring the Executive Board. The Zone reorganization carried out in 2022 will be reversed: the Latin America and North America Zones will be merged again and Greater China will be integrated into the Asia Zone. There will also be some changes to the Executive Board - with two new Swiss members, Nespresso CEO Philipp Navratil and the new Head of Human Resources Anna Lenz.