Zhitong Finance learned that Nestle (NSRGY.US) lowered its mid-term profit target and said it would split its drinking water business into a separate business as the new CEO Laurent Freixe tried to revive sluggish sales growth. The world's largest food producer said on Tuesday that its full-year operating margin is expected to be 17%, below the 17.5% to 18.5% target set by former CEO Mark Schneider. In the medium term, sales are expected to increase by 4% or more, while Schneider had anticipated a medium single-digit growth rate until 2025.

According to the report, total sales for the first nine months of 2024 fell 2.4% year over year; sales for the first nine months were CHF 67.1 billion, compared to CHF 68.8 billion for the same period last year. Organic sales increased 2.0% in the first nine months, and actual internal growth (RIG) was positive. Affected by weak consumer demand and consumer hesitation about global brands, RIG fell 0.5%, which is related to geopolitical tension.

Nestlé has lowered its full-year results guidance. The company currently expects organic sales growth of around 2% in 2024 (previously expected to increase at least 3%), in line with the previous nine months; potential earnings per share calculated at a fixed exchange rate are expected to be roughly the same (previously expected to grow at a medium single-digit percentage).

Freixe said, “Driven by actual internal growth, we have achieved organic sales growth. Consumer demand has weakened in recent months, and we expect the demand environment to continue to weaken. In light of this outlook and our actions to further reduce customer inventory in the fourth quarter, we've updated our full-year guidance.”

The group will split water brands such as Maison Perrier and Acqua Panna into an independent business from January 1, 2025, led by Muriel Lienau, head of Nestlé's European water business. The mineral water business accounts for less than 4% of revenue and has recently been plagued by pollution issues and supply restrictions. Management will evaluate corporate strategies, including partnership opportunities.

Nestle also announced that it will cut costs by 2.5 billion Swiss francs (US$2.8 billion) by 2027, although the company plans to increase advertising and marketing expenses to enhance its brand effectiveness.

Freixe has been working for Nestlé for 38 years. After Schneider stepped down, he took over as president of Nestlé in September of this year. Schneider led Nestle for almost 8 years. Freixe's first move was to lower the company's organic sales growth target to around 2% this year, which will be the lowest annual growth rate since at least the turn of the century. Nestle said it expects sales growth to improve in 2025, while the basic operating margin will decline.

The CEO is increasing marketing spending in an attempt to restore investor confidence after he cut sales targets in July. Under Schneider's leadership, Nestlé relied on higher prices to drive sales during the post-pandemic inflation period, prompting shoppers to buy cheaper products instead. Since then, it's been hard to get consumers back.