Nestlé will explore strategic options for its US confectionery business, including a potential sale, the company announced today.
Its US confectionery business saw sales of around £722.7m in 2016, primarily through popular local chocolate brands such as Butterfinger, BabyRuth, Raisinets and Oh Henry!, as well as local sugar brands including LaffyTaffy, Nerds, PixyStix and BottleCaps.
However, while the company is the fourth biggest confectionery supplier in the US, its confectionery business represents around 3.5% of its overall sales. Last year, Nestlé achieved total sales of £21.4bn in the US – its largest market.
The Swiss supplier said it would continue to invest and grow in the US, where it has leadership positions across a large number of categories, such as petcare, bottled water, frozen meals, infant food and ice cream. “Nestlé will continue to innovate across these categories to meet rapidly changing consumer demand,” it added.
The strategic review would cover the US market only and most likely be completed by the end of this year, said Nestlé. It would not cover the Toll House baking products, a strategic growth brand that the company said it would continue to develop in the US – adding it was “fully committed” to growing its leading international confectionery activities around the world, particularly Kit Kat. Global confectionery sales amounted to almost £7.1bn in 2016.
Nestlé relied “heavily” on the US for confectionery sales and suffered a “disappointing” 2016 hit by the competitive environment and low growth in the mainstream chocolate market, according to Lianne van den Bos.
“In the US, health-focused shoppers have increasingly turned to snack bars over confectionery bars, as brands, such as Kind, have innovated with sweet and salty flavours that satisfy sugar cravings – and even use chocolate – but enjoy a healthier positioning,” she added.
“At the same time, manufacturers have innovated with products that incorporate dark chocolate, fruit, nuts or other ingredients that provide a more nutritious or lower-calorie indulgence. New brands, such as Brookside, Snappers and BarkThins, have emerged as major new competitors.”
Nestlé’s announcement seemed “to somewhat contradict the message of strategic continuity outlined by the new CEO [Ulf Mark Schneider], and indeed a commitment to confectionery” said Barclays. However, the bank was “not altogether surprised by this development” and did not see it as “a change in tune nor indicative of a wider and more meaningful forthcoming disposal programme.”
Bernstein analysist Andrew Wood said he could “understand some of the (potential) rationale for the strategic review” but would disagree with it were it to lead to the eventual sale of the confectionery business.
“The review suggests to us a prioritisation of short-term – and, perhaps, medium-term – financial results, which may please some investors, but it seems short-sighted for a company that prides itself on taking the longer-term view.”
Jefferies analysist Martin Deboo said: “A strategic review should not be a surprise, and any exit would be a rounding error on earnings. However, along with other recent moves, it continues to signal newfound decisiveness under Schneider, relative to which a lot of belief is in the price. We anticipate interest from tertiary players and private equity, but can’t rule out a consolidating move by Hershey or Mars.”
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