Nestle, the food giant based in Switzerland is expecting its growth in organic sales to remain somewhat muted during the final quarter of 2017 and is increasing its speed in its restructuring plan as it looks to improve its profit margins.
Packaged goods manufacturers have come under pressure to give their business models a full review as well as their brand portfolios as they attempt to satisfy the appetite of consumers for healthy, fresh, local foods while also during the same time improve returns as activist investors become more and more vocal.
The KitKat chocolate bar maker said Thursday it expects its operating margin for 2017 to drop between 0.4% and 0.6% as its restructuring costs will surpass the 1 billion Swiss francs mark or $1 billion, which is double the first plan, while keeping guidance for charges overall of as high as 2.5 billion francs until the start of 2020.
However, Nestle said, that underlying trading margin, which takes out the restructuring costs, was going to improve by a minimum of 0.2% at a constant currency rates in 2017.
Third Point, an activist investor has pressured Nestle to improve on short term returns, and last month it established a target for the that margin to reach between 17.5% and 18.5% by the start of 2020, which would be up from its 2016 figure of 16%.
Growth in organic sales accelerated during the quarter to 3.1%, a first quarter increase of 2.3% and a second quarter increase of 2.4%, and in line with analyst expectations, helped in part by improvement in both Asia and Europe.
Nestle, which is also known for Gerber baby food and Nescafe coffee, said it was expecting an organic growth for the complete year to be in line with its 2.6% growth through the first nine months of 2017, implying there would be a slowdown during the fourth quarter from the 2.9% increase for the same quarter one year ago.
CFO Francois-Xavier Roger during a conference call with the press said that was due as well to seasonal factors like last year’s leap year, and the time of the New Year in China, with expected underlying growth during the last quarter of 2017 of close to 3%.
He also cautioned that the Asia, Europe and Middle East and North Africa zones might not repeat such a good performance during the last three months of the year.
CEO Mark Schneider said in September that approximately 10% of the group’s $90 billion sales would be under review.