Nestlé reaffirms commitment on deforestation as organic growth slows

Nestlé, one of the world’s largest chocolate producers, said it will start a new stock buyback program in January and may complement it with special dividends, seeking to return as much as $20bn to shareholders by 2022.

Its nine-month sales report for 2019 showed Q3 volume growth was the strongest since 2011 but pricing fell 0.2%. The company says the dip is temporary.

Its organic growth, which strips out currency swings and acquisitions, dipped to 3.7% in the third quarter from 3.9% in the second, as prices for its products fell slightly.

Flush with cash after the $10bn sale of a dermatology unit earlier this month, Nestlé also signals it is ramping up its M&A focus as it unveils a new management group to seek out growth opportunities.

Mark Schneider, Nestlé CEO, told investors: "We are pleased with our nine-month results and have made further progress towards our 2020 financial goals. We continue to see good momentum in our largest market, the United States, and very strong growth for Purina PetCare globally. Nestlé’s growth was supported by investment behind our brands, rapid innovation and disciplined execution. ​

“During the third quarter, the roll-out of Starbucks products continued, now reaching 34 countries. Our portfolio transformation is fully on track, as shown by the timely completion of the Nestlé Skin Health disposal. With prudent investments and a disciplined approach to acquisitions, our value creation model is generating profitable growth and attractive cash returns for our shareholders​."

The Swiss-based company, Europe's largest by market cap, also reported YTD sales rose 3.7%, in line with analyst estimates, helped by Starbucks-branded coffee for Nespresso machines and Purina pet food.

Success story

Steve Miley, a senior market analyst at www.asktraders.com​, told ConfectioneryNews: “Flush with cash following the sale of its skin & health business, the announcement of a 20bn Swiss franc [$20.13bn] share buy-back programme has overshadowed results in line with expectations.​

“Nestlé​ is bearing the fruits of its turnaround plan, which is clearly gathering pace after three years in action. This is a success story in a challenging market; the firm’s turnaround plan looks to raise sales growth, profit margins and sell off under-performing business line in a bid to keep up with rapidly changing consumer tastes.​

“The share price is already up over 30% this year, outpacing the broader market and a reflection of its well-received turnaround plan. Whilst there could be more upside, the price is looking slightly loft at these levels.”​

Deforestation

The report also confirmed the company’s commitment to producing deforestation-free products.

Over the past 10 years, Nestlé said it has been leading the way in its efforts to end deforestation across its supply chain. The company has developed an integrated approach with a combination of certification, supply chain mapping, on-the-ground verification and satellite surveillance. As of April 2019, 77% of the key agricultural commodities Nestlé buys, including soy and palm oil, were verified deforestation-free.

Nestlé said that figure will surpass 90% by the end of 2020 – and the company will “continue to work with smallholder farmers and large suppliers alike to be close to 100% deforestation-free within the next three years”.

• Read in full: Nestlé reports nine-month sales for 2019​​