Sector News

Nestle may sell U.S. confectionery business

June 16, 2017
Food & Drink

Nestle may sell its roughly $900 million-a-year U.S. confectionery business, which includes Butterfinger and BabyRuth, in the Swiss food group’s latest effort to improve the health profile of its sprawling portfolio.

The world’s largest packaged foods maker said on Thursday it would “explore strategic options”, including a possible sale, for the business that also includes 100Grand, SkinnyCow and Raisinets.

Analysts have been speculating that Nestle could exit the U.S. confectionary business which is not in line with its stated strategy of becoming more health and nutrition-focused.

That strategy, underlined by last year’s naming of a healthcare veteran as CEO, comes as the whole packaged food sector battles a slowdown from a new generation of savvy consumers that are eating fresher and healthier foods.

The review is limited to the United States, where Nestle does not control its key KitKat brand, and is No. 4 behind Mars, Hershey and Mondelez International.

With annual sales of 900 million Swiss francs ($923 million), the U.S. confectionery business accounts for only 1 percent of company sales. Nestle’s other products range from instant coffee to mineral water and baby food.

“This might seem small stuff, but in our view it could be a significant step by new-ish CEO Mark Schneider … toward a more deliberate and efficient capital allocation strategy,” said RBC Capital Markets analyst James Edwardes Jones in a note.

Nestle said it remained “fully committed” to growing its international confectionery business, particularly KitKat, which is made in the United States by Hershey. It said it would also keep the Nestle Toll House baking products.

Globally, Nestle’s confectionery business generated sales of 8.8 billion Swiss francs ($9.02 billion) last year.

TO-DO LIST

The global packaged food industry has seen a wave of deals as companies seek to boost profits in a weak market.

Unilever is trying to sell its shrinking margarines business after rebuffing a takeover bid by Kraft Heinz, and Reckitt Benckiser Group is selling its French’s mustard business to pay down debt from its purchase of Mead Johnson, which closed on Thursday.

Nestle had organic sales growth of 3.2 percent last year, which Bernstein analysts said was the lowest of this century and the fifth straight year of slowing growth.

With that backdrop, Nestle has pushed aggressively into areas of health and nutritional science, buying and investing in a range of biotech and medical device firms, as it presses the boundaries between food and medicine.

At the same time it has divested underperforming businesses including the Nutrament drink, Jenny Craig diet business and PowerBar snacks. Last year, it formed an ice cream joint venture with Britain’s R&R.

Last year, RBC’s Jones said a strategic review of the confectionery business should be near the top of the new CEO’s to-do list. “It’s incompatible with Nestle’s strategy, margins are falling and its competitive position is anemic,” he said.

The clear U.S. leader is Hershey, which last year rejected a takeover offer by its more international rival, Mondelez.

By Martinne Geller

Source: Reuters

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