Nestle sees slower sales as new CEO plans restructuring

[ZURICH] Nestle SA forecast 2017 sales and profitability below its long-term targets as new Chief Executive Officer Mark Schneider steps up restructuring efforts to reignite growth at the world's largest food company.

Revenue will increase 2 per cent to 4 per cent on an organic basis this year, accelerating to mid-single digits by 2020, Mr Schneider told reporters at Nestle's headquarters in Vevey, Switzerland Thursday. He said Nestle expects restructuring costs to rise to about 500 million francs (S$706 million) in 2017, putting pressure on profitability, which will probably be stable.

It's taken less than two months at the job for Mr Schneider to modify Nestle's longer-term guidance, which for more than a decade has been for 5 per cent to 6 per cent average annual sales growth and improvement in the margin. Revenue growth was 3.2 per cent in 2016, missing analysts' estimates for 3.4 per cent and the slowest in at least a decade, illustrating the long list of challenges facing the new CEO.

Those include deflation in Europe, slowing infant formula sales in China, inflation in Brazil and Russia, and increasing competition in the US chocolate market.

"Schneider seems to have embarked on a deep clean-up of Nestle's portfolio in the current year, which will be a transition year," Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note.

"In order to drive future profitability, we plan to increase restructuring costs considerably in 2017," Nestle said, adding it expects "significant" cost savings by 2020.

The KitKat maker said pricing improved in the second half of 2016 and is expected to continue to improve in 2017.

Nestle also reported full-year trading operating profit rose 3.2 per cent to 13.7 billion francs (S$19.3 billion), trailing the 13.9 billion francs analysts estimated. Total sales rose to 89.5 billion francs.

BLOOMBERG