Nestlé considers selling its cold cuts business as sales surge
- Nestlé's organic sales grew 3% for the full year, boosted largely by growth in the U.S. from its pet care, coffee and infant nutrition segments, according to its full-year earnings report. The world's largest food company emphasized the success of its deals in 2018 as its net acquisitions pushed up sales 0.7% and offset divestments.
- The Swiss food giant also announced in the report that it is exploring a possible sale for its international cold cuts and meat business, Herta Charcuterie, as another step in streamlining its portfolio. The Swiss food giant said the strategic review of its Herta business is expected to be done by the end of the year.
- Nestlé's net profit for the year jumped 41.6% to 10.1 billion Swiss francs ($10.02 billion). Looking ahead for 2019, the company said it anticipates continued improvement in organic sales growth.
Nestlé is continuing to take big steps to trim its portfolio. Nestlé didn't put a specific value on the cold cuts brand, but Herta earned about $674 million in sales in 2018.
Looking ahead this year, the company said it's hoping to see more growth from its plant-based segment, and said in the earnings release the decision to sell Herta "underscores Nestlé's increased focus" on that sector. More big food companies are betting on this segment as sales of plant-based foods increased 20% in the past year to more than $3.3 billion, according to data from Nielsen and the Plant Based Foods Association.
Nestlé has been zeroing in on meat alternatives since its acquisition of plant-based food maker Sweet Earth in 2017. The company is also launching a plant-based Incredible Burger this year to compete with the growing number of grillable patties in the sector.
Along with Herta, Nestlé is also considering selling its skin health units. These two potential sales and the overall uptick in M&A for the company comes as a result of significant pressure to streamline its portfolio to high-growth products. Activist investor Daniel Loeb heavily criticized the company's "muddled" strategy and pushed Nestlé to focus its capital spending on food and beverage categories including coffee, pet care and bottled water.
The company previously pledged to overhaul 10% of its portfolio. In this most recent report, Nestlé said it is on track with those goals. And it seems to be paying off. Sales this quarter in the Americas grew 2% as North America returned to positive growth with "strong momentum," the report says.
Nestlé has become an M&A powerhouse in the last few years, and overall net acquisitions increased sales by 0.7% in 2018. Early last year, Nestlé sold its U.S. confectionery business for $2.8 billion. At the same time, the company has been increasing its investment in coffee. Nestlé — which already owned Nescafé, Taster's Choice and Nespresso — acquired a stake in coffee shop chain Blue Bottle, bought Chameleon Cold-Brew and spent $7.15 billion to buy Starbucks' retail products. According to the report, its Starbucks business was "smoothly integrated and saw strong demand for its coffee products." Starbucks and supplements brand Atrium Innovations, which the company bought for $2.3 billion for in 2017, were responsible for sales increase — and helped to more than offset divestments from the U.S. confectionery business.
"With these portfolio changes, the strategic picture of the group becomes much clearer than one to two years ago, with our focus on food and beverage and nutritional health," Nestlé CEO Mark Schneider told reporters at Nestlé’s headquarters Thursday, according to Swissinfo.
Overall, the company's big plan seems to be working. Revenue accelerated for the first time in seven years last year, according to Bloomberg. This success means that there will likely be more M&A in the future, especially considering the longstanding activist pressure.
Loeb has said he wants the company to continue to reorganize itself and divest its confectionery, ice cream and frozen foods businesses. Growth in frozen food, including pizza, was flat this year and its ice cream product sales slightly dropped from last year, which could give Loeb even more reason to push for sales in those segments.
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