By Michael Susin

Nestle said it would pump more investment into advertising and marketing 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 and for sales growth over the medium term, as it steps up spending to boost its top line and win market share in the face of a tough consumer environment.

Nestle said its water and premium beverages activities 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 update follows Nestle's move to replace longtime chief Mark Schneider with Freixe, a company veteran, in August after sales growth slowed and its share price fell.

Sales at the packaged-food company are under pressure as shoppers around the world spend more cautiously after years of price increases. The company cut sales guidance twice in the past four months and now expects organic sales growth of about 2% for the year, or half of what it projected at the beginning of the year.

Over the medium term, once market conditions normalize, the company expects organic sales growth of more than 4% and an underlying trading operating profit margin--its preferred profitability metric--of more than 17%.

For next year, Nestle forecast an underlying trading operating profit margin for 2025 moderately lower than its 2024 guidance, which puts the figure for this year at about 17%.

At its previous mid-term 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 that the company would hit its 2025 profitability target, with consensus estimates by Visible Alpha putting the metric at 16.6%.

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.

"Our action plan will also improve the way we operate, making us more efficient, responsive and agile," Freixe said.

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

(END) Dow Jones Newswires

November 19, 2024 02:15 ET (07:15 GMT)

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