SWITZERLAND - Nestlé, the Swiss food giant, has announced significant changes to its senior leadership and operational structure, alongside cutting its full-year sales forecast for 2024, following weaker-than-expected sales growth in the first nine months of the year. 

The company attributed its underperformance to subdued consumer demand and challenges in raising sales volumes amid persistent price hikes.

The company now projects organic sales growth for 2024 to be around 2%, down from the previous estimate of at least 3% made in July. 

Nestlé also expects its underlying trading operating profit (UTOP) margin to settle at around 17% for the year. This revision comes after the company posted a 2% increase in organic sales for the first nine months of 2024, falling short of the 2.5% growth expected by analysts.

Laurent Freixe, who assumed the role of CEO in September following the ouster of former CEO Mark Schneider, highlighted the ongoing weakness in consumer demand and predicted that the challenging environment would persist. 

Freixe emphasized that the company is adapting to these conditions by reshaping its leadership structure and business operations. Among the changes, Nestlé will merge its Latin America and North America divisions, as well as consolidate its Greater China unit with its Asia, Oceania, and Africa businesses.

Nestlé’s recent performance mirrored broader difficulties in the consumer goods sector. While prices rose by 1.6% over the nine-month period, it missed the average analyst forecast of 1.7%. 

Meanwhile, real internal growth, which measures sales volume, edged up by only 0.5%, below the anticipated 0.8%.

Nestlé’s rival, Unilever, is set to report next week, with expectations of a 1% rise in prices and a more robust 3.2% increase in underlying sales volumes, according to company estimates.

Nestlé India reports decline in quarterly profit 

In a related development, Nestlé India reported a 9% drop in quarterly profit, driven by rising ingredient costs and declining demand for its packaged food products. 

For the second quarter ending September 30, the Indian subsidiary posted a profit of 10.21 billion rupees (US$121.51 million), with revenue increasing by just 1.3%—the slowest pace in eight years.

The company's increased expenses, up 3.4% during the period, compounded the pressure on its profitability. Nestlé India attributed the decline in demand to higher product prices and softer consumer demand for some of its key brands, though it did not specify which products were affected.

Nestlé India also announced that it would reduce sugar in its Cerelac baby food products, with 14 out of 21 variants expected to be refined sugar-free by the end of November. 

The company had faced criticism earlier this year for adding sugar to baby foods sold in lower-income countries while offering sugar-free alternatives in European markets.

Nestlé India's shares fell by 3.2% following the earnings report, with the company's stock down 10.3% year-to-date.

Commodity costs continue to weigh on packaged food sector

The challenges faced by Nestlé are not unique. Global food manufacturers, including J.M. Smucker in the U.S. and Swiss chocolatier Barry Callebaut, have also been hit by rising commodity prices, particularly for coffee and cocoa. 

Adverse weather conditions in key producing countries like Brazil, Vietnam, and Ivory Coast have led to supply shortages and driven up costs, further straining profit margins in the sector.