Nestlé's Bold Move: 16,000 Jobs Cut, But Shares Soar 7%.
In a dramatic turn of events, Nestlé, the renowned consumer goods behemoth, has announced a massive job cut of 16,000 positions, sending shockwaves through the industry. This announcement comes as the company's new CEO, Philipp Navratil, takes the reins and aims to swiftly turn around the company's fortunes.
A Strategic Decision:
The decision to reduce the workforce is part of a strategic plan to enhance operational efficiency. Of the total job cuts, 12,000 are white-collar roles, with an additional 4,000 roles to be eliminated over the next two years. But here's the twist: despite the significant downsizing, Nestlé's shares surged 7.2% on Thursday, indicating investor confidence in the company's new direction.
Accelerating Cost Savings:
Under the previous CEO, Laurent Freixe, Nestlé initiated a cost-saving program valued at 2.5 billion Swiss francs ($3.14 billion). This program has now been amplified to 3 billion Swiss francs by the end of 2027, demonstrating the new leadership's commitment to financial discipline.
Surpassing Expectations:
Nestlé's third-quarter results exceeded expectations, achieving an organic growth rate of 4.3%. This is particularly impressive given the challenging market conditions, including U.S. tariffs and rising raw material prices, such as cocoa and coffee beans. The company's Real Internal Growth (RIG) also rebounded, increasing by 1.5% in the third quarter, thanks to successful growth investments and favorable comparisons.
Controversial Performance:
However, not all aspects of Nestlé's performance were as promising. The company's business in Greater China continued to lag, negatively affecting organic growth and RIG. But here's where it gets controversial: while some analysts attribute this to market conditions, others suggest it may be a result of strategic missteps. The new management team is now tasked with turning this around.
A Turnaround Story:
According to Jon Cox, head of European consumer equities at Kepler Chevreux, Nestlé's strategy of focusing on successful brands and reviving struggling ones has contributed to its better-than-expected third-quarter sales. He believes the company has turned a corner, and the recent management changes will soon become a distant memory.
A Turbulent Year:
Nestlé has faced a challenging year, with its shares plummeting more than 40% from their December 2021 peak and a 9% decline over the past 12 months. The company's leadership has also been in flux, with Freixe's departure due to a breach of the company's code of conduct and the subsequent accelerated exit of Chairman Paul Bulcke.
New Leadership, New Direction:
Navratil, the former CEO of Nestlé's Nespresso division, has taken the helm with a clear vision. He has committed to embracing the company's strategic direction and accelerating the value creation plan. But the question remains: will this be enough to restore investor confidence?
The Road Ahead:
Analysts suggest that the new leadership team, including former Inditex CEO Pablo Isla, will need to work hard to regain trust. Investors will be keen to see updates on the sale of Nestlé's water and vitamins businesses, as well as the future of its L'Oreal stake. As Navratil stated, the company must 'do more and move faster' to secure its growth trajectory.
What do you think about Nestlé's drastic measures? Are they necessary steps for a brighter future, or is there a risk of overcorrection? Share your thoughts in the comments below!
