Nestlé’s new CEO, Laurent Freixe, recently visited subsidiaries, earning internal praise but facing external skepticism. Despite a 2% growth in sales for the first nine months of 2024, much was due to price hikes, and the company will adjust its growth targets downward again. Stock prices fluctuated post-announcement, reflecting investor uncertainty. Freixe’s plans, aimed at regaining market share and improving customer focus, remain vague, with more details expected next month amid a restructuring of the Executive Board.
Visits from top leadership are quite uncommon for employees at Nestlé, but recent weeks have seen a change with new CEO Laurent Freixe visiting various subsidiaries. This effort is seen as a way to connect with staff on a personal level.
Freixe is well-liked among employees and is recognized as a true Nestlé representative, fluent in the company’s culture and ethos. Nonetheless, external perceptions of the beleaguered food giant are quite different.
On Thursday, Nestlé released its financial results for the first nine months of 2024, revealing disappointing figures. While sales growth was 2 percent, a significant portion of that figure was driven by price increases rather than organic growth. Analysts had anticipated an organic growth rate of 2.5 percent. Overall, Nestlé reported sales of 67.1 billion Swiss francs during this period.
This performance indicates that the company will need to revise its growth projections for the 2024 fiscal year once more. Previously, the estimate was lowered from 4 percent to 3 percent; it will now be adjusted down to 2 percent. Additionally, the operating profit margin is expected to decrease to 17%, compared to 17.3% in 2023.
“Consumer demand has weakened in recent months, and we predict a continued subdued environment,” Freixe stated in a press release. Rising food prices remain a challenge for consumers, even with declining inflation rates.
Volatile Stock Performance
The stock market’s initial response to these results was one of uncertainty, with share prices dipping shortly after trading began. However, the stock rebounded throughout the morning, closing up more than 2 percent by the end of the day.
According to Patrik Schwendimann, an analyst at Zürcher Kantonalbank, the prevailing sentiment towards Nestlé has been quite negative in recent quarters, making today’s share price recovery a potential sign of correction. “Regaining confidence in Nestlé is one of Laurent Freixe’s critical tasks, and his debut as CEO was a meaningful first step,” he noted.
Jean-Philippe Bertschy from Bank Vontobel expressed that the recent business figures represent “a very painful setback for Nestlé, without precedent in its recent history.” He questioned how the company could have anticipated 4 percent sales growth back in July, only to drastically lower that expectation later this year. “For an industry giant like Nestlé, this significant drop in projections within such a short timeframe is extraordinary,” Bertschy commented, also questioning whether the company has hit rock bottom.
Nestlé has faced ongoing challenges, with its share price remaining under the 90-franc mark for several months. This volatility ultimately led to the dismissal of former CEO Mark Schneider in late August, paving the way for Laurent Freixe, a long-time Nestlé veteran, to take charge.
Unclear Strategy from Freixe
Having dedicated 38 years to the company, Freixe has managed significant regions in both America and Europe. Many within Nestlé regard him as the most operationally experienced leader in the organization.
However, Freixe’s plan for steering Nestlé back to success has thus far only been vaguely outlined. Upon his appointment, he emphasized a desire to return to the company’s foundational strengths, including regaining market share, enhancing marketing efforts, and prioritizing customer focus. He reiterated these objectives during Thursday’s announcements.
More specific details regarding Freixe’s strategy are expected to be unveiled at the upcoming Capital Markets Day in November. Key points of interest will likely revolve around how the company plans to address problematic investments from recent years and its strategy for underperforming divisions, such as the water and frozen foods sectors.
Restructuring of the Executive Board
Additionally, Nestlé revealed plans to reorganize its Executive Board. Freixe intends to streamline the board by eliminating additional zones established in recent years. The Latin America and North America zones will be consolidated, while the Greater China zone will be re-integrated into the Asia, Oceania, and Africa (AOA) zone. Furthermore, Philipp Navratil, the head of Nespresso, will join the Group Executive Board and will report directly to the CEO.