For years Nestlé managed to sustain the illusion. Now reality has caught up.
The shares are down by half from their 2021 peak. They trade where they did a decade ago. Revenues and operating profit are broadly unchanged across that span. Adjust for inflation and the picture worsens. A lost decade, neatly packaged.
The tone has shifted accordingly. After Mark Schneider’s abrupt departure, new chief executive Laurent Freixe warned that growth this year will come in at roughly half prior expectations. At the same time, marketing spending will rise by CHF 700m. Slower growth and higher costs means margins will compress.
Investors have responded rationally. At seventeen times earnings, Nestlé now trades far below its ten-year average multiple of around twenty-five.
Management has also signaled the separation — perhaps via spin-off — of the bottled water unit, which owns Sanpellegrino, Perrier and Vittel. Corporate slimming is fashionable, but experience suggests it rarely performs miracles. Reckitt and Unilever tried similar reshuffles. The results were modest.
The change of course suggests that Mark Schneider’s previous strategy was not sustainable. Designed to meet demanding margin targets, it cut marketing budgets and relied heavily on continuous price increases. Markets, however, cannot absorb price hikes indefinitely.
Meanwhile, over the past decade, Nestlé has returned more capital to shareholders than it generated in profits. The gap shows up in the balance sheet, with net debt up CHF 35bn. If revenue growth does not reaccelerate, that generosity becomes harder to sustain.
None of this makes Nestlé weak. It still owns thirty-one brands generating more than CHF 1bn in annual sales. Few companies enjoy such breadth. But breadth is not momentum, and the recent de-rating may simply acknowledge what the financials have long implied — namely, that Nestlé has likely met its glass ceiling.