Nestlé (NSRGY) Stock: New CEO Announces 16,000 Job Cuts Despite Sales Growth

TLDR

• Nestlé plans to cut 16,000 jobs over the next two years, representing about 6% of its workforce
• The company increased its cost savings target to $3.7 billion by end of 2027, up from $2.5 billion
• Third quarter sales rose 4.3%, with real internal growth of 1.5% beating analyst expectations of 0.3%
• Nestlé stock surged 8.2% in Swiss trading, marking the biggest single-day gain since 2008
• New CEO Philipp Navratil took over last month after previous CEO Laurent Freixe was ousted for hiding a relationship with a subordinate

Nestlé announced plans to eliminate 16,000 positions worldwide over the next two years. The move comes just weeks after new CEO Philipp Navratil took the helm.

The job cuts represent roughly 6% of the company’s total workforce. They’re part of a larger cost-cutting initiative that Navratil unveiled Thursday.

The CEO increased the company’s savings target to 3 billion Swiss francs, or about $3.7 billion, by the end of 2027. That’s up from the previous goal of 2.5 billion francs.

The news came alongside better-than-expected third quarter results. Sales rose 4.3% during the period.

Real internal growth, a key metric that measures sales volumes, came in at 1.5%. Analysts had only expected 0.3% growth in that measure.

Investors liked what they heard. Nestlé stock jumped as much as 8.2% in Swiss trading, the biggest gain since 2008.

Breaking Down The Job Cuts

Of the planned reductions, 12,000 will hit white-collar workers. The remaining 4,000 cuts will come from manufacturing and supply chain roles.

CFO Anna Manz said the layoffs will occur across different geographies and job functions. The white-collar reductions alone should bring about 1 billion Swiss francs in annual savings.

The CEO is a Nestlé veteran with more than 20 years at the company. He most recently ran the Nespresso business before getting the top job.

Leadership Shake-Up Context

Navratil’s appointment came after a messy leadership situation. His predecessor Laurent Freixe was ousted just one year into his tenure for hiding a relationship with a subordinate.

Chairman Paul Bulcke also stepped down earlier than scheduled in the wake of the scandal. Former Inditex CEO Pablo Isla replaced him.

The new leadership duo inherited a company that needed to boost volume growth and address governance problems. Navratil appears to be sticking with the basic strategy Freixe had started.

That includes spending more on advertising and betting on fewer but bigger product launches. It also means getting rid of underperforming business units.

Freixe had already begun looking at potential sales of struggling vitamin brands. He also separated the bottled water business into a standalone unit to find a potential partner.

Any job losses from selling off businesses won’t count toward the 16,000 planned cuts. Navratil confirmed the company is evaluating everything in its portfolio.

James Edwardes Jones from RBC Capital Markets welcomed the CEO’s approach. He praised Navratil’s stated goal of fostering a culture that doesn’t accept losing market share.

The beat on real internal growth was particularly important, Jones noted. That metric has been the biggest area of investor concern.

Navratil confirmed the company’s full-year guidance remains unchanged. Nestlé stock is up 19.1% year-to-date and continues to pay dividends after 25 consecutive years.

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