Nestle SA Plans to Revamp Advertising Strategy

Investing.com — Nestle SA (SIX:NESN) intends to boost its advertising and marketing expenditure while targeting cost reductions of at least $2.8 billion by 2027. This initiative involves restructuring its water and premium drinks divisions into a distinct global unit.

The announcement was made on Tuesday as part of efforts to stimulate growth under the leadership of the newly appointed CEO, Laurent Freixe, who took over from Mark Schneider in September after his tenure as CEO of the world’s largest food company.

Schneider was ousted following a period of disappointing investor returns due to slow sales volume growth. His previous cutbacks on marketing and innovation during the pandemic have affected Nestle's market share, as consumers have turned to more affordable and innovative options.

Nestle plans to secure savings of at least 2.5 billion Swiss francs ($2.83 billion) by 2027, aside from ongoing savings of about 1.2 billion Swiss francs. The company aims for more than 4% organic sales growth under normal operational conditions, with a targeted underlying trading profit margin of 17%, as opposed to the approximate 2% organic sales growth anticipated for 2023.

Moreover, Nestle will increase its advertising and marketing investment to 9% of total sales by 2025, a level last seen in 2019, to revitalize its growth strategy.

At the capital markets day (CMD) event in Vevey, Switzerland, Freixe emphasized his aim to improve underperforming businesses, stating a preference to "fix, rather than to sell, the majority of" them. Chief Financial Officer Anna Manz supported this by confirming, "we don't have a portfolio problem" and reaffirmed the commitment to driving organic growth.

Starting January 1, 2025, Nestle will also create a dedicated global unit for its water and premium beverage segments.

In light of these developments, RBC Capital Markets analysts expressed that Nestle's updated fiscal 2025 and medium-term guidance is reassuring amid market concerns regarding margin maintenance. They labeled the mid-term revenue growth target of at least +4.0% as ambitious, especially since consensus estimates are already lower than 4%, and suggested a more conservative guidance could be beneficial.

Additionally, Barclays (LON:BARC) analysts noted the importance of the CMD event on Tuesday, where they expect details about cost savings and timelines, alongside strategies to elevate sales and market share. They acknowledged it was positive to see clarity on the increase in advertising spending, aligning with their previous models.