By Michael Susin


Nestle said it would pump more investment into advertising and marketing and review options for its water business as part of Chief Executive Laurent Freixe's plan to revive sales growth at the Swiss food giant.

The maker of KitKat chocolate bars and Nescafe coffee on Tuesday tempered its profitability expectations for next year as it steps up spending to boost its top line and win market share in a tough consumer environment.

"Growth is of the essence," Freixe told investors on Tuesday at a presentation at the company's headquarters in Vevey, Switzerland.

Freixe said Nestle hadn't invested enough in generating demand in recent years, a trend he plans to reverse by returning advertising and marketing spending back to prepandemic levels.

Investment in advertising and marketing is expected to represent 9% of sales by the end of next year, Nestle said. To help fund higher spending, the company said it would target measures to deliver 2.5 billion Swiss francs ($2.83 billion) in additional cost savings by the end of 2027.

In addition, Nestle doesn't plan a new share buyback after its current 20 billion-franc program ends this year, Chief Financial Officer Anna Manz said.

The update follows the company's move to replace longtime chief Mark Schneider with Freixe, a company veteran, in September after sales growth slowed and its share price fell.

Nestle aims to focus on its core brands at a time its sales are under pressure as shoppers around the world spend more cautiously after years of price increases.

The company said its water and premium beverages activities, which includes brands such as Perrier and SanPellegrino, will become a global standalone business as of Jan. 1. The business will be led by Muriel Lienau, currently head of Nestle Waters Europe, who will evaluate its strategy and explore partnership opportunities, the company said.

The segment represented 3.6% of the company's total sales in 2023 and was affected by regulatory issues in several countries.

The company cut sales guidance for the group twice in the past four months. It now expects organic growth of about 2% for the year, or half of what it projected at the beginning of the year.

On Tuesday, Nestle also lowered its profitability target for next year. It now expects an underlying trading operating profit margin--its preferred profitability metric--for 2025 moderately lower than its 2024 guidance, which puts the figure for this year at about 17%. Organic sales growth is expected to improve next year compared with 2024, the company said.

At its previous midterm update in 2022, Nestle had set out a target of an underlying trading operating profit margin of 17.5% to 18.5% by 2025, with organic sales growth in the mid single-digit percentage range.

Many analysts had grown skeptical of the company's initial 2025 profitability target.

Over the medium term, once market conditions normalize, the company expects organic sales growth of more than 4% and a margin of more than 17%.

The updated guidance sets the company up for a transition year in 2025, with several initiatives to restore growth, Vontobel analyst Jean Philippe Bertschy wrote in a note to clients.

Shares in Nestle rose about 1% in early European morning trade, but reversed course and hovered near multiyear lows.


Write to Michael Susin at michael.susin@wsj.com


(END) Dow Jones Newswires

11-19-24 0500ET