Nestlé's Strategic Pivot: Can Laurent Freixe Revive Growth and Justify a Buy?

Nestlé's appointment of Laurent Freixe as CEO marks a pivotal moment for the food giant, as it seeks to reverse underperformance and realign its strategy for long-term growth. Freixe's track record in high-growth markets, coupled with a focus on sustainability and operational efficiency, offers a stark contrast to his predecessor Mark Schneider's acquisition-driven approach. This article examines whether Nestlé's leadership shift signals a credible turnaround and whether the stock presents value for patient investors.

Freixe's Track Record: High-Growth Markets and Operational Excellence

Freixe's career at Nestlé spans over 38 years, with significant roles in Europe, Latin America, and the Americas. His tenure as CEO of Latin America (since 2022) showcased his ability to drive growth while advancing sustainability goals. Under his leadership, all Nestlé factories in the Americas achieved zero waste to landfill, and two factories attained zero environmental impact—a milestone in reducing carbon footprints and water withdrawal.

His experience in turning around underperforming regions is critical. For instance, in Latin America, Freixe prioritized core categories like pet care, nutrition, and coffee, boosting organic sales growth to 2.7% in early 2024, outpacing Nestlé's global average of 2.1%. This focus on regional strengths and cost discipline sets a template for his global strategy.

Portfolio Optimization: Schneider's Legacy and Freixe's Shift

Mark Schneider's tenure (2018–2024) saw Nestlé pursue aggressive acquisitions, such as the $2.5 billion purchase of Sweet Earth Foods, aimed at entering the plant-based market. However, this strategy backfired:
- Nestlé's stock underperformed peers, falling 10.3% in 2024 compared to Danone's 3.9% gain and Unilever's 29% rise.
- Overreliance on price hikes to offset volume declines eroded market share, particularly in categories like Wyeth in China.

Freixe's response is a strategic pivot:
1. Focus on organic growth: Increase marketing spend to 9% of sales by 2025 (up from 7.5% in 2023) to rebuild brand equity.
2. Cost savings: Target US$2.8 billion in savings by 2027, enabling reinvestment in high-margin segments like Nespresso and Purina.
3. Simplify operations: Split water brands into a standalone division and streamline underperforming segments.

This shift mirrors his success in Latin America, where operational efficiency and brand-centric strategies drove growth despite macroeconomic headwinds.

Sustainability as a Competitive Advantage

Freixe's emphasis on sustainability isn't just compliance—it's a growth lever. Initiatives like regenerative farming and partnerships to reduce deforestation in cocoa and coffee supply chains align with rising consumer and investor demand for ESG performance. For example:
- Zero environmental impact factories demonstrate scalability of green practices.
- The Nestlé Needs YOUth initiative, expanding youth employment programs, builds local stakeholder trust in emerging markets.

These efforts could enhance Nestlé's license to operate in Asia, Africa, and Latin America, where regulatory scrutiny and social expectations are intensifying.

Stock Analysis: Value Amid Uncertainty

Nestlé's stock (SIX: NESN) has struggled since Freixe's appointment, reflecting investor skepticism about his ability to meet organic sales growth targets of 4%+ by 2025. Current valuation metrics are mixed:
- Forward P/E ratio: 23x, slightly below its 5-year average of 25x.
- Dividend yield: 2.8%, competitive with peers but vulnerable to margin pressures from higher marketing spend.

While near-term risks include margin compression and execution delays, the long-term case hinges on Freixe delivering on his “fewer, bigger, better things” strategy. Success in revitalizing KitKat, Maggi, and Purina in Asia and Africa could unlock significant value.

Investment Conclusion: A Buy for Patient Capital

Nestlé's stock is undervalued if Freixe's reforms succeed. Key catalysts include:
1. Market share gains: In pet care (Purina) and premium coffee (Nespresso), where margins are resilient.
2. Cost discipline: Savings from restructuring could offset marketing investments.
3. Sustainability leadership: ESG tailwinds may differentiate Nestlé in a consolidating industry.

Recommendation: Buy with a 3–5-year horizon. Short-term volatility is likely, but the alignment of Freixe's strategy with growth markets and ESG trends positions Nestlé to rebound. Monitor progress on 2025 sales targets and sustainability milestones as key metrics.

In an era where operational rigor and sustainability are non-negotiable, Laurent Freixe's track record suggests he could be the right captain for Nestlé's next chapter.