EUR 850.00 For Business Accounts Only

Morningstar | NSRGY Updated Forecasts and Estimates from 01 Mar 2019

Although Nestle’s efforts to reposition itself as a nutrition, health, and wellness company have largely been timely, the company has been struggling lately to reach its benchmark “Nestle Model” organic growth rate of 5%-6%.While global consumer products companies deploy their deeply grounded supply and distribution networks to market products adapted to local markets and tastes, we do not believe that Nestle has successfully translated its unparalleled research and development investments into sound product development recently. Prudent R&D, marketing, and trade spending ensure that products will always be in sync with the latest local consumer trends (given good execution) and easily available wherever consumers are shopping. Recent missteps have resulted in low new product introduction rates, with Nestle missing out or being late in adapting to the latest consumer trends. Packaged food is increasingly becoming commoditised, and we see a risk that price competition may weigh on Nestle’s growth. The emergence of the hard discounters selling private-label products and the threat of the online channel lowering barriers to entry for smaller, nimbler manufacturers that have proven to be more adept at identifying the niche opportunities are all headwinds for large-scale CPG firms.That said, we think Nestle can stand out from the pack. Early signs are encouraging. Aside from structural cost-cutting efforts that will enable it to reach margins in line with competition, the new management team has put a lot of weight on reinvigorating growth (mid-single-digit target by 2020) through active portfolio management (acquiring/divesting businesses comprising 10% of sales), resetting fixable base businesses, and further investment in high-growth categories (coffee, pet care, water, and nutrition). Further, population growth, urbanisation, and economic growth are secular drivers in emerging markets, where the company sources a sizeable and growing share of its sales, which should support medium-term volumes and help stabilise pricing, though at a lower level than historical averages.