- Nestle named sources of 2.5 billion Swiss francs ($2.5 billion) in savings over the next three years. Savings will come from areas like factory efficiency and procurement, executives announced at a recent investors meeting.
- Nestle held to its predictions for revenue growth in 2016, which are in line with 2015's 4.2% sales increase. The company also backed its long-term annual sales growth target of 5% to 6%, which Nestle has missed for the past three years.
- Nestle also announced new partnerships with technology companies to improve its e-commerce sales and online presence. Nestle has increased its online sales from 3.9% of total sales last year to 4.5% currently.
Nestle's CFO Francois-Xavier Roger did not provide details on margins. He said it was not yet decided how much savings Nestle would reinvest versus direct to the bottom line.
These cost-cutting efforts are crucial for Nestle. Shareholders may be nervous about the company consistently missing its growth targets while competition in the food industry ramps up. In the most recent quarter, Nestle reported 3.9% sales growth on an organic basis, which beat analysts' estimates of 3.6%, though overall sales missed predictions. But at 3.9%, growth fell below the last reported rate of 4.2%, which was the lowest in six years.
Nestle can also appease shareholders by making more permanent changes to operations and expenses that could boost margins — and investors' confidence along with them. Becoming a leaner company would help Nestle keep profits steadier even if it continues to fall short of its revenue growth targets.
As a more agile company, Nestle could also be more of a trendsetter itself. It already is one in an up-and-coming arena, with the recent developments in the medical foods business. Nestle's sprawling portfolio means it can capitalize on growth in many segments, but also be unwieldy and costly to manage. Cost-cutting efforts can float Nestle's profitability while it determines its next move to spur revenue growth.
Nestle's efforts to expand its online penetration is a smart strategy for identifying pockets of growth. E-commerce is still relatively new for food and beverage as compared to other industries, so innovation in this area could help Nestle skip ahead of the competition. Or, Nestle could at least remain competitive with companies like Mondelez, Tyson, Snyder's-Lance, ConAgra, and Campbell, which have already made strides to improve e-commerce platforms.