Nestle plans to return as much as €18bn to shareholders by 2022 and indicated an appetite for acquisitions to help chief executive Mark Schneider sustain faster growth and better profit margins.
Flush with cash after the €9bn sale of a dermatology unit earlier this month, the Swiss food giant said it will start a new share buyback programme in January and may complement it with special dividends over the next three years.
It is also reorganising its bottled-water business after a sales decline. Mr Schneider is wrapping up his third year at the head of the food giant, during which Nestle’s market value has increased by almost $80bn.
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 is axing about 4,000 jobs involved in frozen-food delivery in the US and helped put the company on track for savings of 1.9bn francs (€1.7bn) this year.
Nestle has signalled it is 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 said, however, it would prefer to make investments to expand its main businesses, and it would scale down the €18bn target if any sizeable acquisitions pop up. Mr Schneider said it is hard to say how likely it is that Nestle will distribute the full amount.
“With acquisitions, it always takes two sides,” he said.
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.
Mr Schneider gained a reputation as a dealmaker at his former employer, Fresenius, where he transformed the German company into Europe’s largest operator of private health clinics through more than 30 acquisitions.
Nestle will probably make further divestments next year before making a large purchase in medical nutrition or health sciences around 2021, possibly expanding in the US, predicted Alain Oberhuber, an analyst at MainFirst Bank.
“I expect a bigger acquisition,” he said. “The question mark is on timing.”
Nestle is also restructuring its bottled water unit, where sales are headed for a second annual decline as tough competition attracted consumers away from Nestle’s low-end brands. Nestle Waters will no longer run as a separate business and will instead be integrated into Nestle’s three main geographical zones.
Maurizio Patarnello, the head of the unit, will exit Nestle’s executive board. Mr Schneider said Nestle will focus its portfolio on faster-growing brands of sparkling and flavoured waters like Perrier and S. Pellegrino.
The category should be able to boost sales growth up to 5% to 7% annually eventually, he said.
Europe’s largest company by market value reported a slight deceleration in third-quarter sales growth to 3.7% as pricing declined, especially in coffee. Nestle said the softness is temporary and pricing will improve this quarter and into 2020.
The new buyback comes as Nestle’s shares trade near-record levels, and the size exceeded MainFirst’s estimate of €11bn. 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 €300m price too low, it was reported.
Mr Schneider is getting Nestle closer to meeting the decade-old sales target he scrapped in his first year at the company, though analysts still don’t think he’ll make it in 2020. After missing the 5%-6% goal for four years, the company brought Schneider in to step up the pace.