How does a benchmark consumer staples giant like Nestle S.A. (OTC:NSRGF, VTX:NESN) reset the agenda and return to growth after a period of losing market share to global competitors like Unilever and Danone (OTCQX:DANOY)?
For Barclays, replacing the chief executive, as Nestle did this week with the ascension of long-time vice president Laurent Freixe, is a start but certainly not the end.
Freixe replaced Mark Schneider, a former Nestle outsider who spent seven years in the role before the board reportedly forced his hand.
Despite leading Nestle through the challenging pandemic times, the KitKat and Nescafen owner’s share price has consistently pointed downwards since the end of 2021 amid flat organic sales trends.
“We think the change of CEO is an important line in the sand,” said Barclays analysts, who contended that “Freixe understands consumers and is more into the weeds of execution, which we think is exactly what is needed”.
“However, changing the CEO alone will not solve all of the problems,” they continued. “In our view, there has been too much decentralised decision making which has exacerbated the Issues.
“Also, the consumer backdrop remains challenging and Nestle has lost time over the past few years, which makes it even more imperative that it takes market share not just on the core, but across its entire portfolio.”
Barclays see virtue in trimming the fat around Nestle’s brand portfolio, specifically frozen products and bottled water.
Positively speaking, coffee and pet products, which comprise half of Nestle's offering, make for an “enviable food portfolio”, but the group “can no longer be given infinite time to improve” on a holistic level.
Analysts continued: “Ultimately Nestle needs to get back to the basics, which means flawless execution and much bigger and bolder innovation and more concentrated bets, particularly in fast-growing white spaces.
“Megatrends like healthy ageing and the GLP-1 consumer need to be followed up with convincing innovation rather than sound bites and gimmicks.
“We would like to see some 'tangibles' on cost savings even if it's not big bang restructuring and some portfolio decisions to show investors that things are happening.
“We would also like to see the board strengthened to bring fresh ideas and relevant experience.”
As the market awaits Nestle’s capital markets day in November, Barclays remains cautious on the stocks’s investment potential.
The bank has chipped a few Swiss francs off of its price target, which now stands at 95 CHF from 110 CHF previously.
Shares were swapping for 90.6 CHF on Wednesday, suggesting limited upside in the near term until a clearer picture emerges from Freixe.