Geneva: Nestle SA plans to return as much as $20 billion to shareholders by 2022 and indicated an appetite for acquisitions to help Chief Executive Officer Mark Schneider sustain faster growth and better profit margins.
Flush with cash after the $10 billion sale of a dermatology unit earlier this month, the Swiss food giant said on Thursday that it will start a new share buy-back programme in January and may complement it with special dividends over the next three years. It’s also reorganising its bottled-water business after a sales decline.
Schneider is wrapping up his third year at the head of the food giant, during which Nestle’s market value has increased by almost $80 billion. 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 has axed about 4,000 jobs involved in frozen-food delivery in the US and helped put the company on track for savings of 1.9 billion francs ($1.9 billion) this year.
Nestle signalled it’s 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.
The company said it’s restructuring its bottled water unit, where nine-month sales declined 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.
Schneider said Nestle will focus its portfolio on faster-growing brands of sparkling and flavoured waters like Perrier and S. Pellegrino.
“The water category is one that tends to growth of 5 per cent to 7 per cent in most years,” he said on a call with reporters. “We can adjust our portfolio over time to benefit in a better way from the growth the category has to offer.”
Shares of Nestle fell as much as 0.6 per cent in morning trading. Europe’s largest company by market value reported nine-month sales growth of 3.7 per cent, in line with analysts’ estimates, helped by Starbucks-branded coffee for Nespresso machines and Purina pet food.
Third-quarter volume growth was the strongest since 2011, according to Sanford C. Bernstein analyst Andrew Wood. However, pricing dropped by 0.2 per cent in the period, the worst performance in years. Nestle said the softness is temporary.
The new buy-back comes as Nestle’s shares trade at record levels, and the size exceeded MainFirst analyst Alain Oberhuber’s estimate of 12 billion francs.
Nestle said it would prefer to make investments to expand its main businesses, and it may scale down the 20 billion-franc target if any sizeable acquisitions pop up. Schneider joined Nestle from Fresenius, a German medical company he expanded through a wave of acquisitions.
Jon Cox, an analyst at Kepler Cheuvreux, has said he wouldn’t be surprised to see bolt-on deals in areas management has highlighted for attention: coffee, water, pet care, nutrition and consumer health.