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Nestlé turns to new CEO to boost health push

January 9, 2017
Food & Drink

After decades of trying to push into healthier foods, Nestlé SA is elevating a new chief executive—plucked straight from the health-care industry—to kick its effort into higher gear.

Ulf Mark Schneider, 51 years old, takes the reins at Nestlé on Jan. 1. He spent the past 13 years heading German health-care giant Fresenius SE, which runs hospitals, makes medical equipment and supplies drugs and nutritional products.

Nestlé, the world’s largest packaged-food company by revenue, is tapping that experience as it works to reinvigorate its drive to diversify away from the slower-growing food and beverage products—like Stouffer’s frozen TV dinners, KitKat chocolate bars and Nescafé instant coffee—that have long been its mainstay.

PepsiCo Inc., General Mills Inc., Kraft Heinz Co. and others have pumped money into creating healthier products, or reformulating existing ones to make them less bad for you, with mixed results. So has Nestlé, but the company has simultaneously taken a more radical path: For years, it has also been investing in a bevy of health-care firms in an effort to profit from the intersection of food and pharmaceuticals.

Nestlé, which declined to comment for this article, also declined to make Mr. Schneider available to comment.

In September, Nestlé agreed to buy a British maker of a device to treat dysphagia, a swallowing disorder. Earlier in the year, it teamed up with a U.S. biotech to develop products aimed at restoring bacterial balance in the digestive system. It is also expanding aggressively into “medical foods,” intended to help prevent, treat or manage conditions like metabolism issues, cancer and obesity.

The effort has stretched back decades—Nestlé made its first health-care-nutrition investment in 1986—but it has gained more prominence in recent years. In 2010, Nestlé promised to “be a pioneer in the new industry that we are helping to shape in the space between a fast-moving consumer-goods company and a pharma company.” It created a separate health-science division the next year and since has made a series of acquisitions aimed at beefing it up. But so far, these haven’t delivered significant sales increases.

Last year, Nestlé health-science revenue was about 2 billion Swiss francs ($1.95 billion), or just 2.25% of overall revenue. The unit absorbed Nestlé’s prior health-care-nutrition business, which had sales of 1.6 billion francs in 2009, but is distinct from the much-larger general nutrition business.

Despite an array of bets in fields like oncology and depression, the health-science unit has no blockbuster products. Its biggest revenue generator is Boost, a flavored protein drink, rather than any of its disease-focused products, according to a person familiar with the matter.

Critics have said Nestlé doesn’t disclose enough about the business and its trajectory. “This is something of a black box to us,” said RBC Capital Markets analyst James Edwardes Jones.

Shares of Nestlé have declined 1.7% so far this year.

Nestlé’s elevation of a health-care veteran, in Mr. Schneider, could help. He will take direct control of Nestlé’s health-sciences and skin-health units.

His financial record at Fresenius—before becoming CEO, he was CFO of its medical-care business—also could help Nestlé win over investors long accustomed to poor communication by management and thin margins.

Nestlé recently warned it would miss its own sales-growth target for the fourth straight year.

The company’s earnings-before-interest-and-tax margin is forecast to rise by just 0.57 percentage points between fiscal 2016 and 2018, compared with estimates of 4.58% for Kraft Heinz, 2.43% for Mondelez International Inc. and 1.56% for Kellogg Co., according to Jefferies LLC.

Investors hope this will change under Mr. Schneider who at Fresenius was known for his deal making and cost-cutting. Fresenius shares rose 1,246% during his CEO tenure. He is credited with boosting revenue through geographic expansion and a number of big acquisitions. Mr. Schneider “really knows the details and can communicate and explain it all in an easy-to-understand way,” said Marcus Luttgen, a portfolio manager at Alecta Pension Insurance Mutual, which holds shares in Fresenius and Nestlé.

Mr. Schneider has been working at the company since September learning the ropes. He is the youngest pick for the top job in 50 years and the first outsider CEO since 1922.

Mr. Schneider has already been suggesting new cost-savings initiatives, according to a person familiar with the plans, and pushing to accelerate existing cost-cutting measures—like centralizing companywide purchasing.

But Mr. Schneider lacks experience dealing with food and beverages, still Nestlé’s biggest businesses. He will be stepping up to manage a company significantly bigger than his old firm, with almost twice as many markets. Nestlé has 335,000 employees and sells products in 189 countries, compared with Fresenius’s 220,000 employees and operations in 100 countries.

“Nestlé has some material structural growth problems on things like U.S. prepared meals, ice cream, coffee and confectionery that have manifested themselves in its consistent guidance misses,” said Jefferies analyst Martin Deboo. Mr. Schneider, he said, will jump-start growth only by “moving the needle on brands like Nescafé and Maggi, not by repositioning Nestlé as a health company.”

By Saabira Chaudhuri

Source: Wall Street Journal

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