The Nestle insider tasked with fixing a $100 billion food giant

When Nestle SA's top managers gathered at a meeting in June, their discontent was clear. Using their phones to react to various topics under a traffic light system, they repeatedly pressed "amber" rather than "green," expressing frustration at Chief Executive Officer Mark Schneider's vision for the world's biggest foodmaker.

It may have been a somewhat reserved protest, but it said enough within the walls of the Swiss company. Two months later, Schneider was gone.

Only the second CEO Nestle had appointed from outside in its 158 years, Schneider was undone by disappointing sales, underperforming shares and a clear loss of internal confidence in his ability to run a business with more than $100 billion in annual sales.

The economic backdrop is tough, and Freixe has to navigate a new world where blockbuster weight-loss treatments are changing diets. Meanwhile, a slow-moving and bureaucratic internal culture threatens to hold up any transformation.

Freixe has already cut the 2024 sales target, getting the bad news out of the way. That may be a signal that he'll focus on a more slow and steady approach better suited to Nestle's size, perhaps even ditching the previous medium-term target of mid single-digit sales growth.

"Nestle is never going to be the fastest growing company," said Donny Kranson, a portfolio manager at Vontobel Asset Management, which owns shares in Nestle. "Investors put capital behind it for its predictable delivery."

They'll get a chance to more fully assess the CEO at the company's Capital Markets Day next week, when he'll lay out his plans at the modernist headquarters in Vevey, Switzerland. Nestle declined to comment.

Freixe, who started at Nestle France and ran the European and American operations, was a top contender when Schneider was picked eight years ago, according to a person familiar with the matter. But back then, Nestle opted to break with its tried and tested formula of appointing from within.

Unlike Schneider, whose background was in pharmaceuticals, Freixe speaks the language of consumer goods, using buzz words to stress the importance of relationships with retailers in quickly shifting everything from Nesquik milkshakes to Maggi stock cubes.

On the day of his first results as CEO, he spoke about moving at pace, something that investors will want to see. Shares have fallen 19% in 2024, lagging the Stoxx Europe 600 Index. The company is trading at 17 times earnings, down from almost 27 times in early 2022.

As he engineers a turnaround, Freixe says managers have got his back. "There is strong support for me and for my message," he said last month.

Until recently, Nestle traded at a premium to other big European food groups: It had responded nimbly to the pandemic and benefited from people dining more at home. Since then, it's struggled to grow the top line without the cover of price hikes as inflation eased. That's eaten away at profitability, as have increases in commodities such as coffee and cocoa.

The food industry is also grappling with changing habits, particularly with the growth of obesity medications that suppress the appetite like Ozempic.

Excluding pet food and specialised nutrition, less than half of Nestle's portfolio is considered healthy, according to the Health Star Rating model. It's introduced a product line tailored to those taking such drugs, but there's still a risk if medications succeed in reducing food intake.

"In addition to the near term issues with inflation and consumer sentiment, there are existential questions for the industry," said Kevin Dreyer, co-chief investment officer of value at Gabelli Funds, which holds stock in Nestle. "How they contend with GLP-1s and how big a factor those are going to be in future consumption."

One question is whether Freixe offloads some brands. Schneider sold assets such as facial injections business Galderma Group AG and bottled waters to private equity when money was still cheap and valuations rich. Things have since changed, but assets coming out of corporations, particularly in food, health and wellness, can offer an enticing turnaround opportunity.

Freixe could complete the exit from ice cream brands like Haagen Dazs, which is already in a joint venture with private equity fund PAI, or sell some US frozen food names. Nestle is also sitting on a €36 billion stake in cosmetics maker L'Oreal SA.

Some of this could be sold and the money spent on new assets like protein shakes maker BellRing Brands Inc., according to Dreyer.

Slow Mover

If Freixe has dramatic plans in mind, there may also be hurdles within Nestle, where decision-making can be slow and cautious.

Take compostable Nespresso pods. By the time Nestle introduced its own in 2022, independent producers had long been selling their versions to Nespresso clients. Freixe has said he wants innovation to be more focused: Invest in a few big projects rather than many without critical mass.

As he formulates his plans, the new boss sees his insider status as an advantage.

"Starting from this position of deep knowledge of the business means that I have been able to move forward at pace," he said on Oct. 17. "Developing an action plan, and then starting to put the action into that action plan."