Nestlé’s plan to cut 16,000 jobs over the next two years may do little for staff morale, but was heartily welcomed by investors.
The food giant’s share price bounced 8% after its new boss announced plans to axe around 6% of the global workforce, three quarters of which will be white-collar workers.
“The world is changing and Nestlé needs to change faster,” said new CEO Philipp Navratil.
The announcement came as the Kit Kat and Nespresso maker delivered better-than-expected quarterly results, with rises in both volumes and price in the first nine months of the year.
“A good debut from Nestlé and the new CEO,” said Warren Ackerman at Barclays. “Overall, we would give this an 8.5/10 and think there is enough for investors to start to think that this could be a real line in the sand, after five years of underperformance.”
Financial markets typically applaud widespread job cuts, said Russ Mould, investment director at AJ Bell, as removing costs from a business typically implies bigger profits.
However, Nestlé would still have more cutbacks to come, he forecast. “Navratil says Nestlé needs to ‘change faster’, suggesting widespread job cuts won’t be the only difficult decision he has to make,” he said, suggesting the new CEO may also opt to slim the company down via asset sales.
Job cuts aside, Nestlé’s volume growth was the other highlight. Real internal growth (RIG) – a company proxy for sales volumes – was up 1.5% in the third quarter, beating expectations by over 1%. Navratil said this week RIG was the “number one priority.”
“Could this trading update confirm that Nestlé is on its RIG rehabilitation journey?” asked RBC Europe analyst James Edwardes Jones, noting RIG was the “biggest area of concern for the market”.
Navratil took over last month as CEO after his predecessor, Laurent Freixe, was sacked for hiding a romantic relationship with a colleague.
Chris Beckett, a consumer staples analyst at Quilter Cheviot, said: “The results indicate that despite his history as a career Nestlé employee, under Navratil it will not be business as usual.”
“Management have grand ambitions to bring Nestlé back to where it has historically been, but for now the company is a work in progress.”
Not everyone is happy with the plan to cut jobs, however: Unite, which represents over 1,000 members in Northern England, has warned it will “fight for every job” the company plans to make redundant.
The layoffs will include 12,000 “white-collar jobs”, according to Navratil, alongside 4,000 cuts in production and supply chain roles.
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