Nestle to Return $20 Billion to Investors
The Nestle birds nest logo sits on packets of white sugar on display ahead of a news conference to announce Nestle SA’s full year results in Vevey, Switzerland. (Photographer: Stefan Wermuth/Bloomberg)

Nestle to Return $20 Billion to Investors

(Bloomberg) --

Nestle SA plans to return as much as $20 billion to shareholders by 2022 and indicated an appetite for acquisitions to help Chief Executive Officer Mark Schneider sustain faster growth and better profit margins.

Flush with cash after the $10 billion sale of a dermatology unit earlier this month, the Swiss food giant said Thursday that it will start a new share buyback program in January and may complement it with special dividends over the next three years. It’s also reorganizing its stagnating bottled-water business, which may exit underperforming brands.

Schneider is wrapping up his third year at the head of the food giant, during which Nestle’s market value has increased by almost $80 billion. The maker of Nescafe and KitKat bars has bought more than 20 companies under the CEO, the first outsider to gain the position in almost a century. He’s axing about 4,000 jobs involved in frozen-food delivery in the U.S. and helped put the company on track for savings of 1.9 billion francs ($1.9 billion) this year.

Nestle signaled it’s sharpening its M&A focus further as it unveiled a new management group that will seek out growth opportunities, to be led by Sanjay Bahadur, a 37-year corporate veteran who has been head of acquisitions for the past decade and finance director for greater China before that.

Nestle to Return $20 Billion to Investors

Nestle said it would prefer to make investments to expand its main businesses, and it would scale down the buyback target if any sizeable acquisitions pop up.

Schneider said that guidance shouldn’t be interpreted as a signal that any big acquisitions will happen, and it’s just to clarify Nestle’s strategy in case “something very large and extraordinary were to happen.”

“With acquisitions, it always takes two sides,” Schneider said, speaking on a call with reporters. “It takes a willing buyer and a willing seller, and it all has to happen on terms that are prudent and meaningful for us, so we’ll need to see.”

Dealmaker Reputation

Schneider gained a reputation as a dealmaker at his former employer, Fresenius SE, where he transformed the German company into Europe’s largest operator of private health clinics through more than 30 acquisitions.

The CEO is under pressure to sustain Nestle’s growth momentum. Third-quarter sales growth decelerated slightly to 3.7% as pricing declined, especially in coffee. Nestle said the softness in pricing is temporary, due to a tough comparison, and it expects improvement this quarter and into 2020.

Shares of Nestle fell as much as 2.3%, paring the gain this year to 28%.

Chief Financial Officer Francois-Xavier Roger has repeatedly said that Nestle would be comfortable letting its debt rating drop to a single A if an investment opportunity arises. Standard & Poor’s rates Nestle AA-, while Moody’s has it at Aa2.

“I expect a bigger acquisition,” said Alain Oberhuber, an analyst at MainFirst Bank. “The question mark is on timing.”

Nestle announced plans to restructure its bottled water unit, where sales are headed for a second annual decline amid low-end price competition. Nestle Waters will no longer be a separate business and will instead be integrated into the Swiss company’s geographical zones. Maurizio Patarnello, the head of the unit, will exit the executive board.

‘Surgical Adjustments’

Nestle may make some “very surgical adjustments around the globe” to get rid of underperforming water businesses, Schneider told analysts on a call. The company may even exit water businesses in some countries.

The CEO said Nestle will focus its portfolio on faster-growing brands of sparkling and flavored waters like Perrier and S. Pellegrino. The category should be able to achieve annual sales growth of 5% to 7% eventually, he said.

Separately, Nestle repeated that it will complete its review of its ailing European processed-meat brand Herta by the end of the year. Nestle put the unit up for sale eight months ago. The only bid it got was from Bigard, France’s largest meat processor, and Nestle found the 300 million-euro price too low, Les Echos said last month.

Schneider also said Nestle hasn’t finished reviewing underperforming businesses and that some “isolated areas” within confectionery deserve attention.

©2019 Bloomberg L.P.

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