So far, 2024 has been a very eventful year for Nestlé. The world's most valuable food brand has seen leadership changes, unpredictable financial results and major upsets within the industry as a whole.
This month, Nestlé cut its full-year sales outlook and reported worse-than-expected nine-month organic sales growth. It now expects 2024 organic sales growth to be close to 2% and an underlying trading operating profit margin of 17%.
CEO Mark Schneider stepped down after seven years in the role in August, and new CEO Laurent Friexe faces a number of complex challenges coming into 2025.
Barclay's has released a new report for investors which looks at the key considerations that Friexe must take into account in the coming months.
1) European Consumer Behaviour
The report suggests that European consumer appears to be getting 'incrementally weaker.' Barclay's believes that the European consumer is showing more 'value-seeking' behaviour and focusing on affordability as high food prices and inflations continues to erode household budgets.
2) Latin America Challenges
Barclays has noted that although Latin America has been a key market for many European Staples companies over the last two years, 'cracks' are beginning to appear.
Nestlé referenced a weaker consumer and retailer atmosphere across Latin America in the third quarter which it believes is being driven by increasing cost of money, meaning that retailers are much more cautious about keeping inventories at high levels.
3) Weak Sales In Türkiye
Nestlé specifically mentioned Türkiye recently and expressed disappointment with business in this region.
The report mentions the rapid weakening of the Turkish economy and that most companies are capping prices in Türkiye, resulting in a sharp slowdown in volume/mix in the quarter.
4) Strong Infant Nutrition Market In China
Barclay's noted that Nestlé's China segment delivered solid growth in the face of a 'challenging' macro backdrop. This was mainly driven by the Infant Nutrition business, supported by strong performance in NAN and an improving performance for its Illuma brand.
Danone have previously estimated that the addressable market for global Medical Nutrition will increase by 50% to €30 billion by 2030, powered by Chinese Medical Nutrition where the market is set to double over the same period.
Barclay's noted that birth rates in China seem to be stabilising, which would also be helpful for Danone.
5) Slowdown In US Coffee Creamer Business
Nestlé recently announced a a slowdown in their US coffee creamer business, which is primarily focused on its Coffeemate brand.
The report suggests increased price competition in the coffee creamers market, and the rise of the value-seeking consumer, are playing a role in the decline.
There has also been weakness in the European coffee pods market sales in Europe, which Barclay's warn could have a negative read across to JDEP.
6) Petfood Market Normalising
The report states that Nestlé has seen pricing in petfood turning negative. Barclay's believes that this reflects lower input costs for cereals (a key input cost for petfood) and lower animal protein pricing.
The financial experts also suspect that with new supply coming on stream, this is allowing promotional activity to step up.
'Transitional Year'
Overall, Barclay's believe that new CEO Laurent Friexe is 'measured and realistic', and that the stock rallied from lows during the analyst conference call due to a combination of short covering and expectations.
Barclay's said this could be the last downgrade and that the CMD is likely to give 'helpful incremental colour' on areas such as savings.
Nestlé said that it would not guide on 2025 until February but Barclays expect the 2025 OSG guide to be prudent at 2-3% growth with a UTOP margin of at least 16%.
'Whilst prudence is good, it will mean on our updated estimates that 2025 will be a transitional year with the second consecutive year of negative EPS growth,' said Barclay's.
'Investors will need to look beyond 2025 and get comfortable that OSG and margins can meaningfully accelerate.'
