What's going on?
Nestlé, the world’s largest food company, reported annual results on Thursday which were slightly better than expected. But it was Nestlé’s plans to review and potentially sell off part of its business that really got investors excited (tweet this).
What does this mean?
Last quarter, Nestlé’s sales growth accelerated thanks to improving momentum in the US and China – two countries at war over trade but in perfect harmony when it comes to buying more infant formula and candy. This helped the Swiss company to best Dutch rival Unilever, whose quarterly sales growth missed investors’ expectations last month.
The company also announced a “strategic review” of its cold cuts and meat products business, which isn’t growing as fast as things like coffee and petcare. Reviews like this typically result in radical restructuring, shutting down the business altogether – or flogging it off.
Why should I care?
For markets: Activists are getting their way.
Activist investors – who amass a sizable stake in a company and then use it to exert influence over that company’s strategy – have long been pushing Nestlé to sell off parts of its business. The hope is that, by cleaving off slower-growth segments, what’s left of the company will be able to increase its sales and profits faster. That should make Nestlé more attractive to investors, whose increased demand for the stock would push its value up to the benefit of existing backers. Nestlé’s 2% rise on Thursday may reflect the fact investors think its slow-cooked meat could well be for the chop.
The bigger picture: Nestlé’s a diamond in the European rough.
Nestlé does about a quarter of its business in Europe, according to FactSet. The company could therefore have benefited from data released on Thursday which confirmed that neither the eurozone nor its biggest economy, Germany, fell into recession last quarter. While the eurozone eked out some growth, there was none whatsoever to be had in Germany. Unfortunately, recent data doesn’t suggest things will get any better this quarter…