Nestlé made another move in its turnaround plan on Thursday, but investors were not impressed by this latest step.
The Swiss food company, which has been around for 160 years, is simplifying its business by selling half of its water division to a private equity firm. However, weaker half-year results show that restructuring costs are hurting profits.
Nestlé’s shares dropped 6.7% in early trading, a much steeper fall than the 0.6% decline seen in the broader Stoxx 600 index in Europe.
The drop in Nestlé’s stock came after the company announced it will create a new joint venture called Peranel by selling a 50% stake in its water business, which includes brands like S. Pellegrino and Perrier, to Platinum Equity for 3 billion euros (about $3.4 billion). This move is part of Nestlé’s plan to focus more on faster-growing areas like coffee and pet care under CEO Philipp Navratil. In the short term, though, the turnaround has hurt results: net profit fell 31% from a year ago to 3.47 billion francs, mainly because of restructuring costs.
CEO Philipp Navratil and CFO Anna Manz are trying to turn around the company behind KitKat and Nespresso after several years of weak performance. They are focusing on boosting sales and making the business simpler. As of Thursday, Nestlé’s stock was trading at 18 times its expected earnings, which is lower than its five-year average. Some investors see this as a good value, given the company’s new direction. However, changing a company with such a long history is a slow process, and these results show there may be more tough quarters ahead.
