Nestle to cut around 6% of its workforce as new CEO looks to accelerate turnaround

Nestle announced plans to cut 16,000 jobs and accelerate its cost-savings program to 3 billion Swiss francs by 2027 under new CEO Philipp Navratil, signaling an intensified turnaround effort. The company reported better-than-expected Q3 organic growth of 4.3% and a return to positive Real Internal Growth (RIG) at 1.5%, which drove shares up 7.8%. Despite these operational improvements and recent management changes, challenges remain, particularly in Greater China, and investors are keenly awaiting further strategic clarity on volume growth, the China business, and potential divestitures.

Analysis

Nestle announced a significant restructuring under new CEO Philipp Navratil, including 16,000 job cuts and an accelerated cost-savings program to 3 billion Swiss francs by 2027. This decisive action, aimed at improving operational efficiency, was met positively by the market, with shares trading 7.8% higher on Thursday. The "strongly positive" sentiment (0.75) reflects market confidence in the new management's intensified turnaround efforts.

The company reported better-than-expected Q3 organic growth of 4.3%, despite an uncertain consumer outlook and rising raw material costs. Real Internal Growth (RIG) returned to positive territory at 1.5% in Q3, following a Q2 miss. This recovery was driven by easier comparatives, Nestle's internal actions, and reduced elasticity effects from price increases, aligning with HSBC analyst expectations.

However, Nestle's Greater China business continues to underperform, negatively impacting organic growth by 80 basis points and RIG by 40 basis points. New management, including CEO Navratil, must rebuild investor trust after recent leadership changes and address this regional weakness. Investors anticipate updates on volume growth, the China turnaround, and potential divestitures of the water unit, vitamins business, and the L'Oreal stake.

Key Decisions for Investors

• Monitor the execution of the 16,000 job cuts and accelerated cost-savings program for tangible improvements in operational efficiency and margin expansion.
• Pay close attention to Q4 and future RIG figures, particularly the trajectory of volume growth, as well as any specific strategies outlined for the underperforming Greater China market.
• Await further clarity from new management regarding strategic portfolio adjustments, including potential divestitures of the water and vitamins businesses and the 20% L'Oreal stake, which could unlock significant value.