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Zurich - Nestlé SA forecast 2017 sales and profitability below its long-term targets as new chief executive officer (CEO) Mark Schneider steps up restructuring efforts to reignite growth at the world’s largest food company.
Revenue will increase 2% to 4% on an organic basis this year, accelerating to mid-single digits by 2020, Schneider told reporters at Nestlé’s headquarters in Vevey, Switzerland on Thursday. He said Nestle expects restructuring costs to rise to about $498m in 2017, putting pressure on profitability, which will probably be stable.
It’s taken less than two months at the job for Schneider to modify Nestlé’s longer-term guidance, which for more than a decade has been for 5% to 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, wrote in a note.
“In order to drive future profitability, we plan to increase restructuring costs considerably in 2017,” Nestlé 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.
Nestlé also reported full-year trading operating profit rose 3.2% to 13.7 billion francs, trailing the 13.9 billion francs analysts estimated. Total sales rose to 89.5 billion francs.
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