Nestlé’s new turnaround strategy received a muted reaction from investors this week as the ailing Swiss giant seeks to reinvigorate its fortunes under a new CEO.
Nestle’s share price has sat in the doldrums of late and is down 23% since the start of the year. By contrast, its global fmcg competitor Unilever, is up 18%.
New CEO Laurent Freixe was hired in September to try and turn things around, setting out his stall for the first time on Tuesday with a new ‘Accelerating Nestlé’ strategy.
The plan will see investment in marketing ramped up to 9% of sales by the end of 2025, and its bottled water business become a standalone business in January as part of a £2.2bn cost-cutting strategy.
The boost to marketing was broadly welcomed by investors, many of who bemoaned cut backs under former CEO Mark Schneider. “[Schneider’s] decision to scale back spending on marketing and innovation allowed the company’s key brands to get stale,” said Russ Mould, investment director at AJ Bell.
“That, in turn, lost Nestlé share in a competitive market which not only encompasses rival brands but also supermarket own-label goods which have appealed to cost-conscious consumers.”
Nestlé also updated its financial guidance and is now forecasting mid-term revenue growth of 4% and operating margins of 17%. This is sensible, according to analysts, who suggest Nestle’s track record of overpromising and underdelivering has been hurting it until now.
“We think that Nestlé’s problems have been as much to do with expectations management as operational management. The fresh CEO-CFO combination seems determined to put that right,” said analysts at RBC Europe.
Nestlé is seen to be finally confronting some of the tricky headwinds that confront it such as consumer boycotts in Asia and the Middle East and steep inflation in chocolate and coffee.
But with its share price still down 3% since the announcement as The Grocer went to press, there are clearly those in the market that want evidence Nestlé can really turn it around before jumping back in.
“The reality is that it will take time to fix with management talking about 18-24 months before they see consumers habit really changing.,” said Warren Ackerman at Barclays.
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