Nestlé cuts profit predictions amid weak market and board reshuffle
The Swiss giant’s third-quarter update today painted a disappointing picture against a backdrop of lower-than-expected sales, due mainly to lagging consumer demand.
Organic sales for the first nine months of the year were flat at 2%, which were driven mostly by pricing at 1.6%.
The results reflect the packaged food’s difficulties in recent years, as the sector continues to struggle with rising commodity costs, transport and energy challenges on the back of the COVID-19 pandemic, and the war in Ukraine.
This is recently positioned CEO Laurent Freixe’s first financial update, having replaced Mark Schneider earlier this year.
“Consumer demand has weakened in recent months, and we expect the demand environment to remain soft,” said Freixe this morning.
Nestlé’s organic sales expected to drop“Given this outlook and our further actions to reduce customer inventories in the fourth quarter, we have updated our full-year guidance, with organic sales expected to be around 2%, in line with the first nine months.”
The revision follows a downgrade in July to at least 3% from 4%, with underlying trading operating profit margins at 17%, versus 17.3% in 2023.
On the back of a sliding forecast, shares drooped 2.2% and stocks have fallen by 17% year to date.
However, Freixe remained optimistic the business had the tools and portfolio to rally in the future.
“For our brands to win in the market, we need to invest.” Nestlé CEO, Laurent Freixe. Image/Getty“Nestlé is uniquely positioned to win in our industry, given our global scale, broad portfolio of iconic brands and innovative products that connect people every day and in every stage of their lives,” he said.
The business would “build on these strong foundations”, sharpen its customer and consumer focus and drive market share through advancing within its categories, including investment.
“For our brands to win in the market, we need to invest,” he said. “We will generate the resources we need through efficiencies and growth leverage.”
Nestlé’s European Q3 sales performancePerformance within Europe faired slightly better than the wider business, with organic growth up a fraction to 3.3%. This was on the back of higher pricing at 2.5% and despite a sales drop of 1.8% to CHF 13.9bn.
Top-performing markets within Europe were pet food and portioned coffee, with confectionery and water slipping.
Simplification of its leadership team would help to contribute towards the business’s growth ambition. Its Latin America and North America zones would merge into one Americas zone, led by Steve Presley.
It’s Greater China region would merge into Asia, Oceania and Africa, led by Remy Ejel, with David Zhang stepping down from the executive board, but remaining chairman and CEO of the Greater China territory.
Europe would remain unchanged, while the leaders of the key units will report into Freixe as he focuses on driving stronger performance in key markets.
“A leaner executive board structure and close collaboration of the leadership team at the headquarters will increase simplicity, speed up decision-making and strengthen momentum,” said Freixe.
