Nestle Prepares for Slowdown, Might Consider Merger and/or Acquisition to Stay On Top

On Thursday, Nestle updated that organic sales—a metric which strips out the effects of acquisitions, divestments, and currency fluctuations—grew by only 3.2 percent, in 2016. This is down from 4.2 percent from the year before; the fourth straight year that Nestle has fallen short of its 5 to 6 percent growth objective (which is actually known as the “Nestle Model.”

In addition, Nestle comments that its new objective would be to achieve “mid-single-digit organic growth,” instead of its previous model, in 2020. This means the company will not have a target growth rate for at least the next three years.
According to Nestle SA Chief Executive Mark Schneider, “This is a time out from that model. For [2017 ], 18, 19 we don’t wish to be measured against that.”

He goes on to say, “We need this time to cope with some of the remaining deflationary trends we’re seeing and we also need the time to adapt to some of these very fundamental changes that we’ve witnessed in the consumer-goods industry.”

As such, now might be an excellent time for Nestle to consider mergers or acquisitions, so long as it makes “strategic sense” for the company, of course.

“When it comes to M&A,” Schneider adds. “I think Nestle is no stranger to that,” noting that if and when the time comes, the food and beverage giant will definitely be ready. “There’s no beating around the bush, we are below our own expectations.”

Schneider also notes that coffee, pet food, and bottled water are businesses that the company plans to devote more resources to in the coming months. Obviously, he says, they will also retain their chocolate business even during this time that consumers and industries alike want more and more healthy options.

At the same time Nestle is being cautious: they have reduced employment by about 7,000 (down to 328,000) when it folded part of its ice cream business into another joint venture.

Schneider continues, “In this age of volatility and also still somewhat deflationary environments in major markets, we believe that guidance keeps us hedged on both sides, and we certainly have a strong meet-or-exceed culture when it comes to our guidance. So at this point it was prudent to give ourselves a bit of wiggle room in that regard.”

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