NESTLE, the world’s biggest packaged food group, is doubling spending on its restructuring this year to up to SFr1bn (£778m) to cope with its weakest sales growth in more than two decades.
Europe’s largest company by market value is under pressure to improve returns from activist investor Daniel Loeb, whose Third Point hedge fund revealed a $3.5bn (£2.7bn) stake in June.
It must also review its business model and brand portfolio to ensure its products stay appealing to consumers who often prefer fresh, local foods to Nestle’s Maggi soups or KitKat chocolate bars.
Organic sales rose 3.1 per cent in the third quarter, up from 2.4 per cent in the second, in line with analysts’ expectations in a Reuters poll. Performance was helped by improved trading in Europe and Asia.
Still, Nestle forecast growth for the full year around the 2.6 per cent it generated for the first nine months, implying a slowdown in the fourth quarter and the year as a whole. Last year’s sales rose 3.2 per cent.
“Going forward, everyone is well advised to be cautious and you see that reflected in our expectations for the fourth quarter,” chief executive Mark Schneider said yesterday.
Nestle said it would spend up to SFr1bn this year on restructuring, double its initial plan, as it seeks to cut structural costs, such as by closing factories, boosting efficiency and sourcing globally.
Yet its overall forecast for restructuring costs of SFr2.5bn between 2016 and 2020 remained unchanged.
The acceleration will reduce this year’s operating margin by 0.4 to 0.6 percentage points.
(c) 2017 City A.M.