Nestlé

Overview Key strengths Key risks Global leader as a food and beverage company, with a well-diversified portfolio of well-known brands; the company can use its pricing power to manage inflation. Pressures on volumes after previous price increases as many consumers have traded down or decreased their consumption of food and beverage products. Well-diversified product offering including high growth and profitable product categories such as powdered and liquid beverages and pet care. Nestlé is changing its organizational structure after disappointing sales growth in recent quarters in a bid to be more focused and reactive. Ample financial means enable large reinvestments in product innovation and marketing, which, in turn, support pricing power. Persistent sizable share buybacks and dividend payments have led to

...Our '##-' rating on NestlT is supported by its financial policy commitment to maintain adjusted debt leverage below 3x, but with very little to no headroom left under our base case for 2024-2025. We forecast its adjusted leverage to increase materially in 2024 close to 3.0x, compared with the 2.6x it posted in 2023, which is above the group's overall historical leverage, well below 2.5x. NestlT's adjusted debt will likely reach CHF56 billion in 2024, from CHF50 billion last year. We note the material increase in debt in the past few years is due to the impact of the extraordinary three-year CHF20 billion share buy-back program, completed this year with the residual CHF4.7 billion payment. Solid FOCF of about CHF9 billion in 2024 before principal leases payments and the strict capital allocation policy are commensurate with the current rating. This level of FOCF enables the group to more than self-fund its ordinary dividend payments of about CHF8.0 billion-CHF8.5 billion per year. Said that,...

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