Nestlé acknowledges acquisition missteps

Nestlé has acknowledged two acquisition missteps, beginning a review of a peanut allergy medication purchased for $2.6bn two years ago and spinning out a meal kits business in a rare admission of misjudgments by chief executive Mark Schneider.

The world’s largest food manufacturer said it would “explore strategic options” for Palforzia, a peanut allergy treatment that Nestlé acquired with the purchase of Aimmune Therapeutics in 2020.

The review follows “slower than expected adoption by patients and healthcare professionals” of the treatment, which is made with small amounts of peanut powder, Nestlé said. The acquisition of Aimmune extended Nestlé’s reach into healthcare, which is Schneider’s background: he joined the group from German healthcare company Fresenius.

Nestlé has also agreed to spin out Freshly, a meal kits business acquired in 2020 in a deal valuing the start-up at $950mn. That business was bought as Covid-era restrictions fuelled rapid growth in sales of meal kits, which has now faltered.

Freshly will be merged with Kettle Cuisine, a premium food manufacturer owned by private equity group L Catterton, leaving Nestlé with a minority stake.

Nestlé did not disclose the financial terms of the deal but said Freshly “has not driven the scale or performance we had hoped for” after “dramatic shifts in the external business environment”.

Nestlé disclosed the Palforzia review and Freshly merger as it held an investor seminar in Barcelona, but said it had made a net annual return on acquisitions since 2018 of between 11 and 13 per cent, “with a large majority of transactions at or above their business plans”.

Schneider has become a well-regarded leader in the consumer goods industry since he took over as chief executive of Nestlé in 2017 and began a shift of about a fifth of its portfolio into high-growth areas.

Shares in the group were down 0.8 per cent in early trading on Tuesday before recovering to trade close to flat by early afternoon.

The company, which makes brands including Kit Kats, Nescafé and Milo, upgraded its sales guidance for the year on Tuesday, saying it now expected like-for-like net sales growth of 8 to 8.5 per cent, up from 8 per cent projected in October.

Nestlé’s “pruning of recently acquired businesses was something we considered a risk: when a company moves at speed and tries to innovate rapidly, there will be attempts that fail”, said Bruno Monteyne, analyst at Bernstein.

The company had high hopes for Palforzia but it now appears to be a niche therapy, Schneider told investors. Nestlé’s health science division will now focus on consumer products and medical nutrition.

The group also set out new longer-term targets on Tuesday, saying it would return to an underlying trading operating profit margin of 17.5 to 18.5 per cent by 2025 following a hit from inflation. It also said it would deliver underlying growth in earnings per share of 6 to 10 per cent a year until 2025.