Nestlé's Revival Plan Starts to Pay Off

By Saabira Chaudhuri 

Nestlé SA reported a rise in full-year sales driven by improved performance in the U.S. and China, early signs that Chief Executive Mark Schneider's efforts to revive growth are starting to bear fruit.

The maker of Nescafe coffee and KitKat chocolate on Thursday said organic-sales growth -- a key measure that strips out currency changes, acquisitions and divestments -- rose 3% last year. That was in line with analysts' estimates and an improvement on the previous year's pace of 2.4% -- the weakest level since Nestlé started tracking the figure in the mid-1990s.

Investor cheered the figures, sending shares up nearly 3% in early trading.

Nestlé, like its peers, has struggled in recent years with fierce competition and changing consumer tastes. It has also faced added pressure to boost returns from activist investor Dan Loeb.

In response, Mr. Schneider has focused on key categories including bottled water, coffee and pet food, which he says have better growth potential. He's also sold noncore businesses like U.S. confectionery and is exploring strategic options for the skin-health unit. On Thursday, Nestlé said it is exploring a sale of its European cold meats business, Herta, which generated sales last year of about 680 million Swiss francs ($674 million).

Nestlé said a sharper focus on core products like coffee and pet food boosted total sales by 2.1% to 91.44 billion francs in 2018. U.S. sales rose 2.6%, while China sales were three times higher than the year earlier. Net profit jumped 42% to 10.1 billion francs, boosted by one-off facts like disposals. It said its underlying trading operating profit margin rose by 0.5 percentage point to 17%, putting it on track to hit its 2020 target of 17.5% to 18.5%.

"Mark Schneider's efforts to shift the group's focus toward a better balance between margin expansion and top-line growth are slowly bearing fruit," said Robert Waldschmidt, an analysts at Liberum, a brokerage.

Nestlé said its decision to explore the sale of its Herta charcuterie unit reflected its increased focus on plant-based offerings, which it said are growing much more strongly than meat as consumers look to be more environmentally friendly while getting enough protein. In 2017, Nestlé bought California-based Sweet Earth, which makes plant proteins that can replace meat in meals such as curries and stir fries.

"Within food products we see significantly better growth opportunities for plant-based offerings," said Mr. Schneider. "That whole focus on plant-based offerings is very much on trend, it will be with us for years to come."

The Vevey, Switzerland-based company has also been pushing to expand its coffee offerings, earlier this week announcing 24 new coffee products under the Starbucks brand, including Nespresso style capsules and whole bean and roast and ground coffee. Nestlé last year purchased the rights to offer Starbucks coffee and tea in grocery and retail stores for more than $7 billion.

For the year, Nestlé reported weaker pricing than the year earlier although volumes -- typically seen by analysts as a healthier approach to driving growth -- were strong. The company said prices strengthened through the second half of the year as compared with the first. Nestlé reported pricing growth of 0.5% and volume growth of 2.5%, compared with pricing of 0.8% the year earlier and 1.6% of volumes.

The company said for 2019 it expects sales growth to improve while restructuring costs will hit about 700 million francs.

Nestlé also Thursday said it had nominated Dick Boer, former CEO of grocer Ahold Delhaize, and Dinesh Paliwal, CEO of Harman International -- a Stamford, Conn., auto-parts supplier acquired by Samsung Electronics Co. in 2017 -- to its board as two existing members step down. The company had been criticized by Mr. Loeb for not having board members with food and drink experience.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

February 14, 2019 06:19 ET (11:19 GMT)

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