Nestlé S.A. Commitment to Market Execution

Nestlé S.A., the Swiss multinational food and drink conglomerate, has reiterated its commitment to refocus on market execution following the announcement of a CEO change. The company’s chairman, Paul Bulcke, emphasized the need to return to basics after several years of reshaping the portfolio under outgoing CEO Mark Schneider.

Leadership Transition

Laurent Freixe, who will take over as CEO on September 1, stressed the necessity for increased investment to bolster the company’s market share and support brands, innovation, and growth platforms.

Freixe also indicated that these investments would be funded by enhanced productivity and cost-efficiency programs.

Strategic Focus

The company aims to create a model where investments lead to market share gains, which in turn drive organic sales growth. This growth, combined with savings, is expected to result in improved margins and allow for further reinvestment.

Nestlé has opted for a “Nestle way” approach to productivity, signaling a preference to avoid large and potentially disruptive restructuring programs.

Market Insights

UBS, in its commentary, noted that Nestlé’s profitability is closely tied to consumer income and confidence. As an international entity, the company’s financial results are influenced by currency exchange rates.

It also identified key risks including potential prolonged weakness in the pet care and coffee categories that could adversely affect the group’s organic growth and operating margin.

Valuation

UBS’s 12-month price target for Nestlé shares remains at CHF95.00, based on a discounted cash flow (DCF) model with a weighted average cost of capital (WACC) of 7.4%. This valuation takes into account an equity risk premium of 6%, a risk-free rate of 3%, and a terminal growth rate of 2%. The current rating stands at neutral. The bank has set a target price of CHF95 on the stock.

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