Nestle's overhaul of business model hits margins as sales grow in third quarter

Sales growth in Europe and Asia rise as consumer demand from North America stays flat in the third quarter of this year

The KitKat maker has spent £77m this year on restructuring (REUTERS)

Nestle said it expected its operating margin to slip by 40 to 60 basis points in 2017 due to higher restructuring costs from a faster overhaul and said full-year organic sales growth should be in line with the 2.6 per cent seen in the first nine months.

But the world’s biggest food company said its underlying margin, which strips out costs of closing factories and other charges from its revamp, was set to improve.

Makers of packaged foods are under pressure to review their business models and brand portfolios to satisfy consumers’ appetite for fresh, healthy, local foods, while at the same time improving returns to silence increasingly vocal activist investors.

The maker of KitKat chocolate bars and Nescafe instant coffee said on Thursday that restructuring was progressing faster than planned, taking overall spending to as much as 1bn Swiss francs (£77m) this year.

“We maintain our guidance for overall restructuring costs of up to 2.5bn [Swiss] francs until 2020,” chief finance officer Francois-Xavier Roger told reporters on a call.

Organic sales growth accelerated to 3.1 per cent in the third quarter, from 2.3 per cent in the first and 2.4 per cent in the second, Nestle said. This matched the forecast in a Reuters poll.

In the nine-month period, sales reached 65.272bn Swiss francs as growth in Asia and Europe picked up, while in the Americas sales growth eased, Nestle said.

Organic growth in North America was flat, the company said, citing soft consumer demand, with a decline in sales volumes particularly in confectionery and ice creams. Roger said he still expected the sale of Nestle’s US confectionery business by the end of the year.

Nestle shares have risen almost 15 per cent so far this year.

Reuters