Nestlé could swap out around a tenth of its portfolio in its continued pursuit of shareholder value, according to the food giant’s CEO, Mark Schneider.
Schneider was speaking at the company’s investor day today in London, saying that there was “scope for portfolio adjustment estimated at around 10% of group sales”. That could include Nestlé’s US confectionery arm, which includes brands like Butterfinger. It’s being weighed up for a potential sale by Nestlé and, despite not having any publicly known bids on the table, has reportedly attracted the attention of Ferrara Candy.
“We will have to trade out of some areas and into others,” Schneider said, as quoted by Reuters. He said each move had to be considered carefully due to high associated costs.
Nestlé has already outlined its focus on high-growth categories like coffee, infant nutrition, pet care and bottled water. Between them, the four categories account for more than half of group sales and are growing almost 2% faster than Nestlé’s other categories.
We also know the company has an acquisitions fund of around CHF 20 billion ($20.6 billion), which it can use to replace assets it chooses to divest.
Analysis: How much is 10% of Nestlé?
Mark Schneider’s comment that Nestlé could strip away 10% of its group sales and replace them with higher-growth, higher-return acquisitions comes in the context of a possible sell-off of its US confectionery business. Nestlé is thought to be seeking bidders for the unit, which accounts for around $924 million in annual sales. But Nestlé is so huge, larger than any other food company, that $924 million barely represents 1% of its overall business (1.0349% to be precise).
So just how much would 10% of Nestlé get you?
The revelation comes on the same day that Schneider announced an improved profit margin target of between 17.5% and 18.5% as well as ‘a ‘mid-single digit organic growth target’ – both to be implemented by 2020.
Speaking earlier, Schneider said: “Nestlé has a strong foundation, a clear path forward and a bright future. We have a proven track record of delivering sustainable, industry-leading performance. In line with today’s accelerating pace of change, we are intensifying our focus on innovation, operational efficiency, and portfolio management.
“We will grow by remaining at the forefront of consumer trends and offering the brands and products to meet people’s changing needs, especially their demand for a better, healthier life.”
Today’s investor conference comes three months after activist hedge fund Third Point announced it had taken a $3.5 billion stake in Nestlé amounting to around 1.3% of all outstanding shares. In that time, the company has demonstrated its focus on high-growth categories with deals for plant-based food brand Sweet Earth, coffee chain Blue Bottle, and meal kit firm Freshly.
© FoodBev Media Ltd 2020
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