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Nestle Weighs Future of Underperforming Units

October 2, 2013
by candyandsnacktoday

Vevey, Switzerland — Nestlé SA CEO Paul Bulcke today announced the company’s intention to take action on underperforming assets in its portfolio, limit capital investment and pursue structural efficiencies as part of its strategic plan — the first acknowledgement that it is evaluating the future of its 1,800 business cells and 8,000 brands ranging from chocolate and coffee to infant formula and packaged foods.

Speaking before the 2013 Nestlé Investor Seminar, Bulcke outlined a strategic initiative for building a “lean enterprise” that would enable the company to perform at peak efficiency and innovate ahead of the pace of the market. Noting increased capital expenditures in emerging markets, new research centers and capital improvements in the past four years, Bulcke reaffirmed the investments were “the right thing to do” but that it was time to cap them.

In August, Nestlé conceded that its mid-year sales had fallen short of forecasts and it would struggle to reach its earnings target.

“We are not restructuring, we are pursuing more efficient growth,” Bulcke asserted, and Nestlé CFO Wan Ling Martello added: “When we talk about managing our strategic portfolio there are two sides to the coin. It’s not just walking away from businesses that are underperforming; it’s also accelerating where we need to accelerate.”

Martello explained that the company had rolled out metrics to 90 percent of its 1,800 business cells and had “clear visibility” of their condition. She reiterated Bulcke’s statement that Nestléwould first consider whether poorly performing units could be fixed and what rehabilitation would require. However, she acknowledged: “Maybe it's not a business that we’re the best owner for, and we will need to walk away from it.”

Earlier this week rumors circulated in the media that the company was contemplating sale of its PowerBar brand, which it purchased in 2000 for an undisclosed price, estimated at $375 million. Although the Performance Nutrition segment contributed to Nestlé’s Nutrition Division’s 2012 sales of $7.9 million and 6.7 percent organic growth, the company’s 2013 half-year results showed lower-than-anticipated profits overall, and it said it was lowering its annual sales goals and reviewing the performance of its 8,000 brands. PowerBar added an estimated $200 million in sales to the segment in 2012.

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