Nestlé could use the ‘fresh start’ provided by its new chief executive Laurent Freixe in the coming months to lower financial guidance for the second time this year following months of weak sales volumes, according to some analysts and investors.
Under former CEO Mark Schneider – who the company ousted in August – Nestlé already cut guidance this year.
In February, Nestlé said it expected 2024 organic sales growth of around 4% and a moderate increase in the underlying trading operating profit margin.
By July, it estimated organic sales growth “of at least 3%” and a mid-single-digit percentage rise in underlying earnings per share at constant currencies, sending its stock down by more than 5%.
Jeneiv Shah, portfolio manager at Nestlé investor Sarasin & Partners said, “A lot of investors are wondering, can they really hold on to the prior margin guidance? Or if the brands need a little bit more investment?
“I think it’s commonly known now that’s a potential scenario.”
Nestlé declined to comment.
Results
On Thursday, analysts expect the company to report nine-month organic sales growth of 2.5% according to a company-provided consensus.
The analysts expect real internal growth – a metric involving sales volumes – to have risen by 0.8%.
Freixe’s challenges include reviving innovation and marketing, as well as winning back investor confidence in core brands such as Nescafé coffee and Kit-Kat bars.
The packaged food industry has struggled to regain sales volumes after companies offset high production costs to consumers during high inflation.
Consumers balked at increased prices and moved to cheaper, private-label alternatives.
This year, as inflation has eased, many of Nestlé’s competitors have slowed price increases hoping to win back these customers.
Nestlé has been slower off the mark, analysts said, and Schneider’s departure came on the heels of several weak quarters of sales volumes.
Janus Henderson’s head of global equity income Ben Lofthouse said, “People will be very interested in seeing whether companies (like Nestlé) are sticking to their long-term goals or pulling back.”
2025
Nestlé has said that, by 2025, it expects “mid-single-digit organic sales growth and an underlying trading operating profit margin range of 17.5% to 18.5%.”
Shares in Nestlé have fallen over 15% since the start of the year, and about 7% since Freixe joined in September.
The head of Swiss equity research at Vontobel Jean-Philippe Bertschy said, “We anticipate that new CEO Laurent Freixe will adjust the guidance for 2024 and set new, simplified mid-term financial targets.
“He has already indicated that sales growth will be a primary focus, with increased investments behind the brands.
“Market expectations have come down significantly in recent weeks, already reflecting the upcoming reset… 2025 is likely to be a transition year.”
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