Nestlé 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%-4% on an organic basis this year, accelerating to mid-single digits by 2020, Schneider told reporters at Nestlé’s headquarters, in Vevey, Switzerland. He said that Nestlé expects restructuring costs to rise to about 500 million francs ($498 million) in 2017, putting pressure on profitability, which will probably be stable.
It has taken less than two months for Schneider to modify Nestlé’s longer-term guidance, which, for more than a decade, has been for 5%-6% average annual sales growth and improvement in the margin. Revenue growth was 3.2% in 2016, missing analysts’ estimates for 3.4% 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 Nestlé’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,” Nestlé said, adding that it expects “significant” cost savings by 2020.
The Kit Kat-maker said that pricing improved in the second half of 2016, and it is expected to continue to improve in 2017.
Nestlé also reported that full-year trading operating profit rose 3.2%, to 13.7 billion francs ($13.7 billion), trailing the 13.9 billion francs estimated by analysts. Total sales rose to 89.5 billion francs.
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