Nestlé shares drop on CEO exit

Investing.com -- Nestlé (SIX:NESN) shares dropped on Friday after the company announced that its CEO, Mark Schneider, is stepping down.

Laurent Freixe, a long-time Nestlé executive, will succeed Schneider as CEO starting September 1.

At 4:15 am (0815 GMT), Nestlé was trading 2.4% lower at CHF 87.34.

Due to this unexpected change, analysts reassess the company's strategic direction and financial performance.

Mark Schneider’s departure as CEO after an eight-year tenure, during which he guided the Swiss consumer goods giant  through substantial transformations, marks a pivotal moment for the company.

Analysts across the board, including those from JP Morgan and UBS Global Research, flag that while Schneider's tenure had its successes, recent performance issues likely accelerated his exit. 

Over the last year, Nestlé's shares have underperformed, declining by 30% since January 2022, a stark contrast to the 22% outperformance during the initial years of Schneider’s leadership​.

Laurent Freixe, who has been with Nestlé and most recently led the LatAm region, is expected to bring stability and a deep understanding of the company’s operations. 

However, his appointment raises questions about the strategic shifts that might ensue and whether his leadership will mark a return to more traditional Nestlé values, as suggested by UBS and Jefferies analysts​.

Nestlé’s current guidance for organic sales growth has been set at "at least 3%" for the full year, with Visible Alpha consensus estimating around 3.1%. 

Analysts from RBC Capital Markets and UBS question whether Freixe might consider lowering this mid-single-digit OSG target, given the company’s recent struggles. 

Both UBS and Jefferies suggest that Nestlé may realistically position itself within a 3.5-4.5% growth range, which, while more conservative, could provide a more achievable target under the new leadership​.

The company's guidance for achieving an EBIT margin of 17.5%-18.5% by 2025 is another focal point of scrutiny. 

UBS and Jefferies analysts believe this target is feasible but caution that it could be constraining, especially given the current economic pressures. 

RBC echoes this sentiment, advising that Freixe should set expectations lower early in his tenure to create room for exceeding targets later on​.

JP Morgan and RBC analysts emphasize that the leadership change may be a response to recent operational challenges.

Current guidance includes a modest increase in the underlying trading operating margin, but analysts expect further clarification during the upcoming Capital Markets Day. 

The general sentiment is that Freixe might need to reassess short-term goals to stabilize the company’s trajectory​.

UBS and Jefferies highlight the importance of whether Freixe will pursue a strategic reset, particularly in light of Nestlé’s underperformance relative to competitors. 

While Schneider's leadership focused on innovation and expanding into new markets such as Vitamins and Minerals, this direction may be reevaluated under Freixe. 

The new CEO may prioritize reinforcing core categories like Coffee, Petcare, and Nutrition, while potentially scaling back on less successful ventures.

Nestlé’s stock was trading at CHF 89.44, with analysts from RBC maintaining a "sector Perform" rating and setting a price target of CHF 96.00, reflecting a modest upside. 

JP Morgan, UBS, and Jefferies have all acknowledged that while Freixe’s deep experience is a positive, the near-term volatility and strategic uncertainty warrant a conservative approach to the stock​.