Nestlé highlights sharpened plant-based focus as Starbucks range debuts

14 Feb 2019 --- Swiss giant Nestlé is exploring strategic options for the Herta charcuterie business including a potential sale, as the company reports its full-year results. As a further step in positioning its portfolio towards attractive high-growth categories, the company is looking to potentially divest its cold cuts and meat-based products, in favor of plant-based products to keep pace with current consumer trends. The company continues to pivot its businesses to changing market conditions by unveiling its first coffee lines under the Starbucks name which comes after Nestlé closed a US$7.15 billion licensing deal to market Starbucks Consumer Packaged Goods and Foodservice products globally.

These announcements come as Nestlé reports 2018 full-year results show that organic sales grew 3 percent in the full year, accelerating to 3.7 percent in the final quarter, and net profit surged 42 percent to CHF10.1 billion (US$10.02 billion).

A full-year results press conference was held earlier today, hosted by Nestlé CEO Mark Schneider and François-Xavier Roger, Nestlé CFO. Schneider explained that the company’s financial performance metrics have significantly improved, including revived growth in two of its largest markets, the US and China, as well as its infant nutrition business.

But it’s the move away from meat and into plant-based alongside the company’s renewed commitment to healthy and nutritional food that really stands out.

“Our review strategy is not a one-shot thing, it’s not a photo. Strategy is a movie, something that unfolds over time, a consistent set of actions that gets the company from one place to another in the face of a changing environment,” Schneider said during the press conference today. “This is essentially what we’ve done over the past several years in a very consistent manner and this whole focus on our core food, beverage and nutrition and health products range, that is really shining through now.”

“Inside food and beverage, if you think about today’s announcement on Herta, it really shows how we are positioning the company towards what is benefiting from higher growth and future areas such as plant-based offerings that are very much on-trend with where consumers are heading.”

“This industry is changing very fast and it requires that we also change very fast to stay in step with it and continue with our lead. That has happened in 2018, we’re seeing significant, meaningful progress on all fronts with our acceleration creation model that we outlined in June 2017,” Schneider notes. 

Nestlé’s strategic review is gathering pace as demand for packaged foods continues to be affected bya global trend towards healthy eating. Nestlé offloaded its US confectionery business to the Ferrero Group in an estimated US$2.8 billion deal in January 2018, and as dairy and meat demand dips, the company will tap into the alternative burger space with the forthcoming release of The Incredible Burger, due to hit shelves this spring. 

Released through the Garden Gourmet brand, the Nestlé plant-based patty will be made from soy and wheat proteins and will compete with other established meat alternatives including the Beyond Burger and Impossible Burger.

Nestlé’s results come as the company also announces the launch of a new range of coffee products under the Starbucks brand to be available globally. The new range consists of 24 products, including whole bean and roast and ground, as well as the first-ever Starbucks capsules developed using Nespresso and Nescafé Dolce Gusto proprietary coffee and system technologies.

Schneider, who replaced Paul Bulcke as CEO in June 2016, is the first outsider to run Nestlé since 1922 and has placed a stronger emphasis on health, well-being and nutrition which is really coming to the fore now. He also recognizes how consumers demand to know what is in their products, where they come from and how they are made and the practices of the companies that they are buying from. 

“We’ve announced a strategic review of our Herta charcuterie business. It’s a very disciplined portfolio adjustment in line with where market trends are going and where we see growth opportunities going forward,” Schneider says.

“We’ve had a new leadership team take charge in China in 2016 and we changed the leadership team in the US in 2018 and reorganized our infant nutrition business which was transformed from a globally managed business in 2017,” Schneider continues. 

Schneider highlights that all the company’s key metrics are “pointing up,” with good improvement on organic growth and good improvement on underlying trading operating profit margin.

Total reported sales increased by 2.1 percent to CHF 91.4 billion (US90.6 billion) while net acquisitions had a positive impact of 0.7 percent and foreign exchange reduced sales by 1.6 percent. The underlying trading operating profit (UTOP) margin reached 17 percent, up 50 basis points and the trading operating profit (TOP) margin increased by 30 basis points to 15.1 percent, reflecting higher restructuring-related expenses.

Earnings per share increased by 45.5 percent to CHF 3.36 (US$3.33) on a reported basis. Underlying earnings per share increased by 13.9 percent in constant currency and by 13.1 percent on a reported basis to CHF 4.02 (US$3.99).

“Strong underlying earnings per share growth, strong return of cash to our shareholders are two other key metrics. Something that really sets this company apart is its sheer will to win and that has really shone through and carried the day and it gives us hope and confidence for the future,” Schneider comments. 

In terms of the 2019 outlook, Schneider expects continued improvement in organic sales growth and underlying trading operating profit margin towards the company’s 2020 targets. Underlying earnings per share in constant currency and capital efficiency are expected to increase.

“Nestlé keeps investing in future growth and, at the same time, has increased the amount of cash returned to shareholders through our dividend and share buyback program,” he notes. 

By Gaynor Selby