Nestle announced that its net profit dropped 6% previous year with decline in double digits at its Chinese food division, thus slowing down its growth at its lower end expectations.
Mark Schneider, the new CEO of Nestle said that the company is planning to significantly increase its restructuring costs this year. He told that it would take several years to go back to the rates of growth targeted by his precursors, compelling the largest food company in the world to enhance restructuring and evaluate its portfolio.
The Vevey-based vendor of Stouffer’s frozen foods, KitKat chocolate bars, and Maggi noodles said that its net income last year dropped from 9.07 billion one year ago to 8.53 billion Swiss francs.
Revenues increased to 89.47 billion francs, indicating a rise of 0.8%.
The world-famous Swiss food and drinks manufacturer did not break down the earnings in quarters. On Thursday, it said that organic development, excluding the acquisition impact, surged 3.2% during the previous year (lower than its expectations). It’s likely to increase by 2% – 4% this year. After that, it may increase to mid-single digits before 2020.
According to Schneider, the costs of restructuring will increase to around 500 million francs ($498 million) this year, pressurizing the profitability. The stock dropped by almost 2.1% in early trading in Zurich.
Schneider took less than two months in his new job to change the yearly growth predictions the food giant has held on to for over ten years.
A Natixis analyst, Pierre Tegner said – “It is a kind of a back-to-reality. The outlook shows that there is a lot to do.”
The growth of revenue was 3.2% last year, missing the estimates of analysts for 3.4%. This was the slowest in almost one decade, showing the long list of challenges that the new CEO faced. Some of these challenges include the European deflation, Brazilian and Russian inflation, decelerating sales of infant formula in China, and high competition in the chocolate market of the United States.
A Liberum analyst, Robert Waldschmidt stated – “A turnaround and a durable earnings inflection will take longer than most expect. While there is no denying Nestle’s strong brand and category positions, we expect Mr. Schneider will first attack the weakness in the core portfolio. Disposals will likely precede larger acquisitions.”
The new Nestle CEO said that there are several acquisition chances in the food, beverage, and health industries. He feels that Nestle should first try to fix the underperforming businesses before taking any other step.