In an announcement that surprised experts, Switzerland-based food company Nestle announced this month that its sales were down and that it would adjust projected growth through the end of the year.
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“Consumer demand has weakened in recent months, and we expect the demand environment to remain soft,” said Nestle CEO Laurent Freixe. “Given this outlook and our further actions to reduce customer inventories in the fourth quarter, we have updated our full-year guidance, with organic sales growth expected to be around 2%, in line with the first nine months.”
This July, Nestle’s full-year outlook included an expectation for organic sales growth of at least 3%. However, its growth over the first nine months of the year was just 2%. Total reported sales were equal to around $77 billion, down 2.4%.
According to a press release, real internal growth was impacted by the soft consumer demand Freixe mentioned, as well as consumer hesitancy towards global brands that is linked to geopolitical tension. Reuters also reported that costs for sunflower oil, shipping, packaging, grain, energy and more have become more expensive for Nestle, and the entire packaged goods industry, due to the COVID-19 pandemic and the Russian invasion of Ukraine.
Nestle was founded in 1905, as a merger between the Anglo-Swiss Condensed Milk Company and Henri Nestle’s company. The Anglo-Swiss Condensed Milk Company was founded in 1866 and Nestle’s company was founded the following year.
In the U.S., Nestle moved its headquarters from Glendale, Calif, to Arlington, Va., starting in 2017. Many of its brands – from San Pellegrino sparkling water to Nescafe and KitKat bars – are popular in the states. However, the company noted that real internal growth was “negatively impacted by approximately 60 basis points by actions taken to reduce customer inventory, mainly in the Americas,” and Reuters said that “people aren’t buying as much,” especially nations in Latin America with weaker economies.
Per the outlet, another snag for Nestle has been tied to easing inflation in the U.S. As inflation came down, other companies slowed their price increases. Nestle didn’t.
At the same time, it is dealing with “years of cuts to marketing and innovation budgets,” according to analysts cited by Reuters. CEO Mark Schneider was even let go in August following several quarters of weak sales.
Vontobel analyst Jean-Philippe Bertschy called this time a “very painful reset for Nestle,” that has been “unprecedented in recent history.”
Still, there was some organic growth observed, mostly “driven by emerging markets in Europe,” said Nestle. It added that coffee was the largest growth contributor.
Changes to Nestle’s executive board were announced the same day as the nine-month results. One of the changes, effective as of Jan. 1, will see Zone Latin America (LATAM) and Zone North America (NA) will merge to form Zone Americas (AMS), to be led by Steve Presley, current CEO of Zone North America. He’ll be relocated to Vevey, Switzerland. Reuters said the company last restructured in 2022.
“Going forward, we are also placing a greater emphasis on Nestle’s digital transformation into a real-time, end-to-end connected, data- and AI-powered organization. I am confident these changes will optimally position Nestlé for future success,” said Freixe.
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