Latest Nestlé CEO exit is chance for bigger reset

Nestlé's NESN latest CEO departure could be a blessing in disguise. Late on Monday, the $234-billion KitKat maker announced that it had dismissed Laurent Freixe for having a secret relationship with a direct subordinate. Losing a boss after only 12 months is bad, especially given the pattern of choppy boardroom changes at the Swiss company. Yet the good news is that new CEO Philipp Navratil has a chance to be much bolder, by pushing forward with a radical new growth strategy.

Freixe touted himself as the man who could bring Nestlé back to its roots in food and coffee, after a venture into health supplements under his predecessor, whom the board ousted last August for poor performance. The company’s strategy under Freixe, which he cooked up with the outgoing Chair Paul Bulcke, was to juice marketing spending to around 9% of sales and simultaneously plough money into core products Purina PetCare and KitKat. The price for investors was the operating margin, which would dip down to around 16% temporarily compared with over 17% previously.

But the plan failed to inspire. Since Freixe took the helm a year ago, the company’s valuation has fallen below 17 times forward earnings from almost 18, leaving Nestlé with a discount to Danone BN and Unilever ULVR. The Swiss group is now onto its third CEO in barely a year, and will soon also have a new chair when former Inditex ITX boss Pablo Isla takes over from Bulcke next April.

Yet the notably younger duo of Navratil and Isla may be more enthusiastic about clearing house, which would make sense. The key problem is that core products like coffee, confectionary and processed foods are not growing very fast. Offloading businesses would reduce net debt, currently 3 times EBITDA, and raise cash for M&A.

Take the U.S. frozen-food division, which one analyst reckons made up 7% of Nestlé’s $114 billion of 2024 revenue. Valued at 2 times sales, a slight discount to the group’s own multiple, it could fetch nearly $15 billion. Flogging part of its Nestlé’s 20% stake in cosmetic giant L'Oréal OR would also help. The holding is worth nearly $50 billion.

With the money, Nestlé could take a leaf out of Mars' playbook and buy up veterinary clinics, potentially allowing it to sell more of its pet food. The relevant unit makes up a fifth of sales. Navratil could also spend more on the health science division, which makes products like Vital Proteins and other nutrition products and is relatively fast growing. The new CEO comes from the company’s coffee unit. He could in theory even buy up coffee chains to push more Nescafé and Nespresso products.

By normal standards, the company has had far too many personnel changes. But the latest one has a chance to please investors.

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CONTEXT NEWS

Nestlé on September 1 dismissed CEO Laurent Freixe after a code of conduct breach, and appointed Philipp Navratil as his successor.

Nestlé said Freixe's departure followed an investigation overseen by Chairman Paul Bulcke and Lead Independent Director Pablo Isla into an undisclosed romantic relationship with a direct subordinate, which breached the company's code of business conduct.

Company veteran Freixe took over the CEO role in September 2024 after Nestlé ousted his predecessor Mark Schneider.

Nestlé shares were down 2.65% by 0720 GMT on September 2.