Nestle plans to buy back shares as profits take a hit

Nestle is planning a major share buyback programme as it moves to reposition itself against a backdrop of lower first-half earnings.

Nestle is the world’s biggest food group in terms of sales. It casts a huge – and often controversial – shadow over the food industry worldwide and its influence is considerable. But the firm has just announced plans to reposition itself in the market alongside an ambitious share buyback plan.

In a conference call, The Drum reports that chief financial officer Wan Ling Martello said the firm plans to “continue our transformation into the world’s leading nutrition, health and wellness company”. With nutrition and health-related products among the world’s fastest-growing food and drink subcategories, he added, the move will allow for more sustainable growth and profits over the long term.

When it comes to executing these plans, it could be that the huge CHF 8 billion (£5.22 billion) share buyback programme announced last week plays an important role.

Since Nestle is one of many firms that have been in talks with Danone over its medical nutrition unit, it could be that this is the first target to set it on the road to becoming a health and wellbeing frontrunner.

Nestle is reportedly hoping to complete its buyback programme by the end of next year, as part of a plan to balance good shareholder returns with maintaining its existing financial rating. It follows on from the decision to sell off a portion of the firm’s stake in L’Oréal earlier this year – a move which could now perhaps be seen as the first step towards this repositioning.

Since nutrition and wellbeing are growing particularly fast in developing economies, it’s fitting that earnings in emerging markets were positive for the firm, with sales growth of 9.2 per cent in the first half of 2014.

That was an improvement on the 8.2 per cent recorded in the same period last year.

But overall, earnings for the food giant were actually down as a result of currency fluctuation. In the first six months of the year, revenues actually fell 4.8 per cent to CHF 43 billion, while net income dropped by 9.4 per cent.

Paul Bulcke, Nestle chief executive, is still highly optimistic.

“The performance in the first half allows us to confirm our outlook for the full year: organic growth around five per cent and improvements in margins, underlying earnings per share in constant currencies and capital efficiency,” he said.