By John Revill
LAUSANNE, Switzerland-- Nestlé SA needs to continue shedding its
fringe businesses and capitalize on its size to cope with the wave
of megamergers that is reshaping the food industry, Nestlé Chairman
Peter Brabeck-Letmathe said Thursday.
Speaking at Nestlé's annual meeting, Mr. Brabeck-Letmathe said
the merger of H.J. Heinz Co. and Kraft Foods Group Inc.--a union
being directed by Warren Buffett's Berkshire Hathaway; and
Brazilian firm 3G Capital Partners L.P.--would create a huge
competitor, particularly in the U.S., Nestlé's most important
market.
The new company, which will be called Kraft Heinz Co., will
compete with Nestlé in major categories such as coffee, where
Nestlé is also facing "formidable" competition from the combined
coffee businesses of by Mondelez International Inc. and D.E. Master
Blenders 1753 BV.
Mr. Brabeck-Letmathe said Nestlé would continue to pare its
portfolio of peripheral businesses to remain competitive with the
new entities.
The Vevey-based food titan needs to accelerate its pace in
selling its units because Berkshire Hathaway and 3G have
"pulverized" the food industry, he said.
Nestlé needs an "acceleration in our policy of adjusting our
portfolio of activities," Mr. Brabeck-Letmathe said.
The Swiss food giant has been selling its fringe businesses for
the last 18 months and said earlier this week it had entered into
exclusive negotiations to sell its Davigel frozen food business.
The company has already sold off water and ice cream businesses
this year and struck deals to sell a snack bar brand and the bulk
of its Jenny Craig diet business.
Nestlé also needs to leverage its scale more effectively, Mr.
Brabeck-Letmathe said without providing details.
Food companies often use their size to negotiate better deals
with retailers and display their products more effectively in
shops. Nestlé's U.S. operations, which were built through a
patchwork of acquisitions, have already started combined
bulk-buying of supplies in an effort to negotiate better deals.
The more competitive landscape comes as Nestlé faces slowdowns
in almost all of its most important markets. The company has
struggled in the U.S. as consumers ditch frozen foods, one of its
most important businesses, and increasingly shun processed
foods.
It is also experiencing slowdowns in China--its second-most
important market--and Europe, which is experiencing a prolonged
period of weakness.
On Friday, Nestlé is expected to post slower organic growth, a
sales measure that cuts out the impact of currency translation and
acquisitions, when it reports its sales for the three months to
March 31.
Analysts expect the food giant to post organic sales growth of
4.1% in the quarter, down from 4.2% in the same quarter a year
earlier.
The company targets a range of between 5% and 6% organic growth
annually, a measure it has missed the previous two years.
Mr. Brabeck-Letmathe said the strong Swiss franc, which surged
after the central bank removed a cap on the currency earlier this
year, had an impact on the company's sales which are reported in
francs.
The fall in other currencies against the Swiss franc has weighed
on Nestlé's reported sales over the past nine years, according to
the company. Its Swiss franc sales over the period were 130 billion
francs ($133.69 billion) lower than they would have been if
reported in constant currencies, which strip out the effect of
currency swings, Nestlé said. That is more than Nestlé's 2014 sales
of 91.6 billion francs.
Aside from currency translation, the main impact was higher
costs for products made in Switzerland, like Nespresso, as well as
costs for the company headquarters.
Mr. Brabeck-Letmathe said the rise in the franc made measures to
increase productivity all the more necessary.
Write to John Revill at john.revill@wsj.com
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