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MarketScreener Homepage  >  Equities  >  Swiss Exchange  >  Nestlé S.A.    NESN   CH0038863350

NESTLÉ S.A.

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Nestlé to Refresh Bottled-Water Business -- WSJ

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10/18/2019 | 02:49am EST

By Saabira Chaudhuri

Nestlé SA, the world's biggest bottled-water maker, is overhauling that business as the industry navigates big consumer shifts -- from the rise of sparkling water to a backlash against single-use plastic.

Bottled-water sales have boomed in recent decades, particularly in the U.S. -- Nestlé's biggest water market -- as consumers cut back on sugary soft drinks. But growth has slowed lately as the category matures and consumers opt for sparkling and flavored waters, which are drunk in smaller quantities.

U.S. bottled-water volumes rose 4% last year, down from 8.3% in 2015, according to Euromonitor. Globally, sales growth slowed to 6% from 7.2%.

The industry -- long criticized for bottling a drink readily available from the tap -- is contending with mounting concerns about plastic waste, rising costs to make and transport bottles, and fierce competition from store-branded products.

Those issues are challenging Nestlé's core water brands, including Poland Spring and Pure Life, with price rises to offset higher costs further eroding volumes. While Nestlé's upscale brands such as San Pellegrino and Perrier are doing well in the U.S., the company was slow to tap the trend for sparkling, flavored water.

Rivals such as Coca-Cola Co. have highlighted the same shift, lauding the performance of premium sparkling brands like Topo Chico, while cautioning that Dasani is under pressure from supermarkets selling big cases of their own-brand water.

Nestlé for the first nine months of the year reported a 2.2% fall in water volumes. That is a big slowdown from 2015, when volumes grew 7.2%.

In response, Nestlé said Thursday it would restructure its water arm, changing it from a stand-alone, globally managed business with headquarters in France, to one managed locally in the company's various regions. Its waters head, Maurizio Patarnello, will leave the company after over 16 years in that unit.

The change mimics a restructuring Chief Executive Mark Schneider pushed through for Nestlé's infant-nutrition arm, where the company says results have since improved. "The business is now at a stage where local responsiveness and competitiveness are of increasing importance," he said.

Overall, Mr. Schneider said his aim was to de-emphasize lower-margin water brands and focus on premium, functional, carbonated and flavored ones. "The whole notion of healthy hydration with water is as important as ever," he said. Nestlé will look to divest local water businesses in some countries, he said, a shift the company began last year with a sale in Brazil.

Since taking over in 2017, Mr. Schneider has focused on a handful of businesses he views as high growth. Water is one of these, along with nutrition, pet food and coffee.

A company spokesman declined to comment on whether there would be job losses at Nestlé Waters, which employs 28,000 people and generates about 60% of its sales volumes from local or regional brands. Water makes up about 8% of Nestlé's overall sales and under 5% of profit, according to Jefferies.

The news came as Nestlé said sales in the nine months ended Sept. 30 totaled 68.37 billion Swiss francs ($68.71 billion), compared with 66.42 billion francs a year earlier. Organic growth -- which strips out the effects of currency movements, mergers and acquisitions -- was 3.7%. Nestlé said it would return 20 billion francs to investors over the next few years, primarily through share buybacks. The company didn't release profit figures.

Water sales were flat in North America and declined in Europe, where Nestlé sold less water than it hoped over the summer.

Water is a "problem category" for Nestlé, said Jefferies analyst Martin Deboo earlier this month. The company is losing share in still water and has been slow to respond to rapid growth in sparkling and flavored water, he said.

Nestlé last year began selling sparkling, flavored water under Poland Spring, Arrowhead and other brands in the U.S. but has struggled to stand out in an increasingly crowded category. Aside from LaCroix -- the market leader in the U.S. -- Coca-Cola Co. and PepsiCo Inc. have rolled out sparkling-water competitors, while startups and private-label seltzer brands abound.

In Europe, Nestlé is among a number of bottled-water makers scrambling to use more recycled plastic in their bottles. It is researching alternatives to plastic and plans to roll out machines next year that accept card payments and let customers refill bottles with filtered, flavored water.

The waters business "has to cope with a number of sustainability issues that are becoming increasingly important," said Mr. Schneider.

Nestlé has also invested in recycling technologies and collection programs to help it comply with new regulations. Incoming European laws will require single-use plastic bottles to contain at least 30% recycled material by 2030. Nestlé wants its water bottles globally to be made from 35% recycled plastic by 2025.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) -0.20% 4.6503 Delayed Quote.4.49%
LACROIX -1.33% 22.2 Real-time Quote.17.19%
LONDON COFFEE -1.07% 1765 End-of-day quote.0.00%
LONDON SUGAR 4.78% 339.8 End-of-day quote.1.74%
NESTLÉ S.A. -0.40% 103.9 Delayed Quote.30.40%
NEW YORK COCOA -0.87% 2742 End-of-day quote.13.35%
PEPSICO 0.19% 134.06 Delayed Quote.21.34%
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Financials (CHF)
Sales 2019 93 216 M
EBIT 2019 16 458 M
Net income 2019 12 566 M
Debt 2019 27 625 M
Yield 2019 2,58%
P/E ratio 2019 24,6x
P/E ratio 2020 23,6x
EV / Sales2019 3,53x
EV / Sales2020 3,53x
Capitalization 301 B
Chart NESTLÉ S.A.
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Technical analysis trends NESTLÉ S.A.
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Income Statement Evolution
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Mean consensus OUTPERFORM
Number of Analysts 28
Average target price 111,61  CHF
Last Close Price 104,32  CHF
Spread / Highest target 16,9%
Spread / Average Target 6,99%
Spread / Lowest Target -15,6%
EPS Revisions
Managers
NameTitle
Ulf Mark Schneider Chief Executive Officer & Director
jeff hamilton President
Paul Bulcke Chairman
Magdi Batato Executive Vice President-Operations
François-Xavier Michel Marie Roger Chief Financial Officer & Executive Vice President
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