Nestlé on Thursday posted a jump in profits and a rise in a key sales-growth metric from 2017, suggesting the company’s shift toward coffee and healthier food is starting to bear fruit, according to a report by Dow Jones Newswires supplied to EFE.
The results could give extra breathing room to Chief Executive Mark Schneider, who took the reins at Nestlé 18 months ago and has faced pressure from a major activist investor to take aggressive steps to improve financial performance.
Headwinds remain for the Swiss packaged foods giant. It struggled to raise prices during the first half of the year even as consumer-price inflation perked up in Europe and sales in the US, its biggest market, remained weak, despite increased momentum, with growth in petcare, coffee and frozen pizza.
Nestlé’s first-half 2018 profit was 5.8 billion Swiss francs ( $5.8 billion), up 19 percent from the previous year. Analysts expected net profit of 4.6 billion francs. Sales in the first half were 43.9 billion francs, up 2.8 percent on an organic basis, which strips out the effects of currency fluctuations, acquisitions and divestments.
Though below the 5-6 percent growth rate that Nestlé had targeted for many years before dropping that goal in early 2017, the first half’s pace topped analyst forecasts and exceeded the 2.4-percent rate for 2017, which was the weakest since Nestlé started tracking that indicator in the mid-1990s.
“Nestlé’s improving measures are starting to kick in and materialize in both growth and returns development,” said Jean-Philippe Bertschy, analyst at Vontobel, in a research note.
Nestlé has faced increased pressure to improve its financial performance from US activist investor Daniel Loeb, who a little over one year ago disclosed that his Third Point LLC owned about 1.25 percent of Nestlé shares and pressed for changes including share buybacks and a formal margin target, Dow Jones added in its report to EFE.
In a recent letter to Nestlé’s top management, Loeb criticized the company for failing to move quickly enough to exit underperforming parts of its business and repeated his call for Nestlé to sell its stake in L’Oréal SA.
Nestlé has already adopted many of his proposals. In June 2017, it launched a roughly $20 billion share buyback. It sold its US confectionery business in January and last year acquired Sweet Earth Foods, a maker of plant-based protein foods. In May, it bought the rights to offer Starbucks coffee and tea in grocery and retail stores for more than $7 billion.
Schneider defended his approach Thursday, saying in the company’s earnings statement that Nestlé was “creating value by pursuing growth and profitability in a balanced manner.”
“It helps Mr. Schneider’s case of modest portfolio adjustments (against more aggressive activist shareholders)” that the company’s water and frozen foods divisions saw an improvement last quarter, said analysts at Baader Helvea Equity Research.
Nestlé has struggled with sluggish sales in recent years, as have other large consumer-goods companies that all face changing consumer tastes and difficulty raising prices.
Nestlé shares were up 2.3 percent in European morning trade.
Nestlé narrowed its organic growth expectations for 2018 and now expects growth to come in at around 3 percent, compared with previous guidance of between 2 percent and 4 percent.
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