Nestle accelerates its progress following a period of historically sluggish expansion
After a slump in sales and profits, food giant Nestlé is aiming to speed up growth. New CEO Laurent Freixe announced, "We're ramping up investments to boost growth and bolster our market shares." The company anticipates a smoother ride to full speed, acknowledging changes are afoot and happening swiftly. Despite a 2.9% dip in profit to 10.9 billion Swiss francs in 2024, Nestlé plans to bump up its dividend to 3.05 francs. Investors applauded the results, with the stock price surging. Analyst Jean-Philippe Bertschy termed 2024's outcomes as a new beginning.
In 2024, Nestlé's revenue dropped by 1.8% to 91.4 billion Swiss francs. When adjusted for exchange rates and divestments, sales grew by 2.2%. However, this was the company's lowest expansion rate in at least 25 years, following a robust 7.2% increase in 2023. Operating income was 15.7 billion Swiss francs, with the margin narrowing slightly to 17.2%.
Like many consumer goods manufacturers, Nestlé began increasing prices to pass along soaring raw material costs to customers. However, in the first half of 2024, the company eased off to retain customers, understanding they tackle higher living expenses and escalating prices for essential items, opting for lesser-priced store brands or bargain shopping. Nestlé lagged behind competitors like Unilever and Danone, resulting in lesser growth rates.
Freixe stated, "We have a strategic plan to speed up our performance and place ourselves for the future's challenges." Boosting growth is the leading priority in Freixe's plans presented in November. To ignite consumer interest in Nestlé products, the company plans to amplify advertising and marketing expenditures to 9% of sales by the end of 2025, up from the current 8%. These expenses will be funded through savings. Nestlé has already committed to an additional 2.5 billion francs in cost savings by 2027, on top of its existing one-billion-franc savings program. Nestlé has already realized savings of over 300 million francs for 2025.
Nestlé reaffirmed its 2025 outlook, focusing on accelerating organic growth and a minimum adjusted operating profit margin of 16%. In 2024, this margin was 17.2%. Despite significant price hikes for two of Nestlé's key raw materials, coffee, and cocoa, the company will only partially pass on these increases to consumers.
Sources:[1] Nestle (2024). 'Nestlé announces ambitious three-year plan to expand organic growth'. Retrieved from [https://www.nestle.com/media/resources/nestle-announces-ambitious-three-year-plan-to-expand-organic-growth][2] Zawya (2024). 'Nestlé boosts investment, eyes Middle East growth'. Retrieved from [https://www.zawya.com/mena/en/news/nestle-boosts-investment-eyes-middle-east-growth-202437420/]
Nestlé's new three-year plan, announced by CEO Laurent Freixe, aims to increase organic growth. As part of this plan, Nestlé will increase advertising and marketing expenditures, targeting 9% of sales by the end of 2025. Despite challenges, Nestlé plans to maintain its dividend, increasing it to 3.05 francs in 2023.
