Nestlé ‘strongly committed’ to confectionery outside US as segment declines continue

‘Very strong global brand’ KitKat means Nestlé has no plans to exit confectionery entirely, says CEO ©iStock/sewer11

Nestlé’s confectionery business has continued to decline in the first half of 2017, but it says it remains committed to the segment.

The KitKat maker said in June 2017 it was considering selling its US confectionery business, including brands such as Butterfinger and Crunch.

An analyst at financial group SIG suggested the company may go further by offloading its entire global confectionery business to align with its health and nutrition strategy under its new CEO.

The KitKat benefit

Mark Schneider, who became CEO of Nestlé In January this year, said in the company’s second quarter Q2 earnings call: “…We’ve made it very clear that we remain strongly committed to the confectionery business in other parts of the world, because we are benefiting from one very strong global brand, as you know, KitKat and then, of course, also many, many strong and iconic local brands with meaningful market shares.”

Confectionery was Nestlé’s only category to report negative organic growth in the first half (H1) of 2017 (January to June) with a -1.6% drop.

Nestlé's US Confectionery Brands

Nestlé’s US confectionery business posted CHF 900m ($924m) in sales in 2016 and comprises the brands:

Chocolate
Crunch, Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps

Sugar Confectionery
SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts

Nestlé’s H1 confectionery segment revenues declined -0.9% on a like-for like basis to CHF 3.7bn ($3.8bn), while its confectionery trading operating profit dropped -16% to CHF 322m ($332m).

The company’s global confectionery business posted the lowest revenues of its seven business segments in H1 and also had the lowest profit margins (10.2%).

Nestlé said its confectionery arm was weak in the Americas over the period, but had gained some momentum in China.

It said hot weather in recent months, especially in June, had affected confectionery performance in Western Europe.

‘Significant interest’ in US business

Schneider said Nestlé has seen “significant interest” from strategic and financial buyers for its US confectionery arm.

Ferrara Candy is among the interested parties, according to a report by Reuters, while SIG has suggested Lindt and Mondelēz are the likeliest buyers.

Schneider said Nestlé was open to “creative deal proposals”, but would prefer a straight sale by the end of the year.

Nestlé chose to review its US confectionery business after seeing limited prospects to bring its US brands – such as SweeTarts, Nerds and Skinny Cow – to international markets, said its CEO.

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