Nestle Says $1 Billion Restructuring Plan to Weigh on Profit

Updated on
  • Nescafe maker doubles forecast for restructuring costs in 2017
  • Company forecasts operating margin to narrow as it cuts jobs

Nestle SA, the world’s biggest food company, almost doubled its forecast for restructuring costs as Chief Executive Officer Mark Schneider tries to revive growth after the weakest nine-month sales since at least 1999.

Nestle, which is cutting jobs at its skin-health unit and shifting headquarters in the U.S. and France, may spend close to 1 billion Swiss francs ($1 billion) on business reorganization this year, Chief Financial Officer Francois-Xavier Roger said on a call with reporters Thursday. That means the full-year trading operating margin will decline by 40 basis points to 60 basis points in constant currency.

Mark Schneider

Photographer: Michele Limina/Bloomberg

Schneider needs to prove he can turn around the maker of Nespresso coffee and Cailler chocolate as sales growth ebbs. Activist investor Dan Loeb has said the company got stuck in its old ways while competitors have adapted to a lower-growth environment amid fast-changing consumer habits. Schneider, who became CEO in January, aims to reach mid-single-digit percentage revenue growth by 2020.

The maker of Gerber baby food said growth in the Americas amounted to 1.3 percent, trailing the 2 percent analyst estimate. Roger said Nestle was a “little bit more concerned” about the region as sales are flat in the U.S. with weak consumer demand. The shares fell as much as 1 percent in early Zurich trading.

“2017 will definitely be a transition year for Nestle,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note. “With North America, which represents nearly 30 percent of sales, remaining flat, it’s very difficult for Nestle to accelerate growth.”

Full-year organic revenue growth will be near the 2.6 percent pace Nestle had in the first nine months, the Vevey, Switzerland-based company also said.

Nestle said it expects the underlying trading operating margin to improve by at least 20 basis points this year in constant currency. The company earlier had forecast its full-year organic sales growth would be at the lower half of its 2 percent to 4 percent target.

Roger said because Nestle is accelerating restructuring this year, the amount next year will be lower, and he maintained the forecast for total costs of about 2.5 billion francs for the 2016 to 2020 period.

Among other highlights:

  • Volume declined slightly in North America, though pricing had a “modest” improvement
  • Bottled-water sales in developed markets declined in the third quarter due to poor weather in North America and Europe and intense competition
  • Water business may be in a better position in fourth quarter, Roger said on call with reporters
  • Asia, Oceania and Africa will not repeat strong performance in 4Q on calendar effects: Last year, fourth-quarter sales were boosted by early Chinese New Year
  • Nespresso had mid-single-digit percentage sales growth
  • Roger said sale of U.S. confectionery unit likely to be completed before the end of 2017
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