Nestlé SA plans to return as much as $20 billion to shareholders by 2022 and indicated an appetite for acquisitions to help chief executive officer (CEO) Mark Schneider sustain faster growth and better profit margins.
Flush with cash after the $10 billion sale of a dermatology unit earlier this month, the Swiss food giant said Thursday that it will start a new share buyback program in January and may complement it with special dividends over the next three years. It’s also reorganizing its stagnating bottled-water business, which may exit underperforming brands.
Schneider is wrapping up his third year at the head of the food giant, during which Nestlé’s market value has increased by almost $80 billion. The maker of Nescafe and KitKat bars has bought more than 20 companies under the CEO, the first outsider to gain the position in almost a century. He’s axing about 4,000 jobs involved in frozen-food delivery in the US and helped put the company on track for savings of 1.9 billion francs ($1.9 billion) this year.
Nestlé signalled it’s sharpening its M&A focus further as it unveiled a new management group that will seek out growth opportunities, to be led by Sanjay Bahadur, a 37-year corporate veteran who has been head of acquisitions for the past decade and finance director for greater China before that.
Nestlé said it would prefer to make investments to expand its main businesses, and it would scale down the buyback target if any sizeable acquisitions pop up.
Schneider said that guidance shouldn’t be interpreted as a signal that any big acquisitions will happen, and it’s just to clarify Nestlé’s strategy in case “something very large and extraordinary were to happen."
“With acquisitions, it always takes two sides," Schneider said, speaking on a call with reporters. “It takes a willing buyer and a willing seller, and it all has to happen on terms that are prudent and meaningful for us, so we’ll need to see."
Schneider gained a reputation as a dealmaker at his former employer, Fresenius SE, where he transformed the German company into Europe’s largest operator of private health clinics through more than 30 acquisitions.
The CEO is under pressure to sustain Nestlé’s growth momentum. Third-quarter sales growth decelerated slightly to 3.7% as pricing declined, especially in coffee. Nestlé said the softness in pricing is temporary, due to a tough comparison, and it expects improvement this quarter and into 2020.
Shares of Nestle fell as much as 2.3%, paring the gain this year to 28%.
Chief financial officer Francois-Xavier Roger has repeatedly said that Nestle would be comfortable letting its debt rating drop to a single A if an investment opportunity arises. Standard & Poor’s rates Nestle AA-, while Moody’s has it at Aa2. “I expect a bigger acquisition," said Alain Oberhuber, an analyst at MainFirst Bank. “The question mark is on timing."