Nestle's dramatic decision to slash 16,000 jobs has sent shockwaves through the industry, but it's also sparked a 7% surge in its stock price. This bold move, announced by the consumer goods giant's new CEO Philipp Navratil, is part of a high-stakes strategy to revitalize the company's performance. But here's where it gets controversial: while investors are cheering the cost-cutting measures, what does this mean for the thousands of employees facing job loss? And is this the right approach to navigate the company through an uncertain economic landscape?
The job cuts, targeting 12,000 white-collar positions and an additional 4,000 roles over the next two years, are aimed at boosting operational efficiency. This comes on the heels of an already aggressive cost-savings program initiated under former CEO Laurent Freixe, which has now been ramped up to 3 billion Swiss francs by 2027. And this is the part most people miss: despite these drastic measures, Nestle managed to post a better-than-expected organic growth rate of 4.3% in the third quarter, even as it grapples with challenges like U.S. tariffs and rising raw material costs for staples like cocoa and coffee beans.
One bright spot is the return of Real Internal Growth (RIG) to positive territory, up 1.5% in the third quarter. This rebound, driven by growth investments in brands like Nespresso and KitKat, contrasts sharply with the second quarter's miss, which had caused Nestle's shares to underperform. Analysts at HSBC had predicted this turnaround, citing easier comparisons and the benefits of Nestle's strategic actions. However, a point of contention remains: Nestle's business in Greater China continues to lag, dragging down organic growth by 80 basis points and RIG by 40 basis points. The company insists that new management is in place to execute a transformation plan, but will it be enough?
Jon Cox, head of European consumer equities at Kepler Chevreux, credits Nestle's strategy of focusing on winning products and turning around underperforming ones for the better-than-expected third-quarter sales. 'It looks like the company has turned the corner operationally,' Cox noted, predicting a positive stock reaction. Yet, this raises a critical question: is Nestle's focus on short-term gains sustainable, or does it risk neglecting long-term growth opportunities?
The past year has been turbulent for Nestle, marked by the ousting of CEO Laurent Freixe over an undisclosed romantic relationship and the accelerated departure of Chairman Paul Bulcke due to shareholder pressure. Navratil, the former CEO of Nespresso, has vowed to accelerate the company's strategic direction and value creation plan. But here’s the kicker: analysts warn that the new leadership duo will need to work hard to regain investor trust, especially as long-term investors remain cautious about the company’s future.
Looking ahead, investors will be closely watching Nestle’s efforts to revive volume growth, particularly in China, and its plans for underperforming units like its water and vitamins businesses. The company’s 20% stake in L’Oreal also remains a key area of interest. As Navratil puts it, 'We must do more and move faster to accelerate our growth momentum.' But the million-dollar question remains: can Nestle strike the right balance between cost-cutting and innovation to secure its future? What do you think—is Nestle on the right track, or is it cutting too deep? Share your thoughts in the comments below!
