Nestlé (OTC: NSRGY) began as a condensed milk company in Cham, Switzerland in 1866. In the early 20th century, the company merged with the Anglo-Swiss Milk Company, making its first entry into the U.S. market. The company survived World War I, and its coffee was a staple for U.S. servicemen serving in Europe during World War II. After the war ended, Nestle began an aggressive expansion strategy, making many acquisitions and diversifying its portfolio of products. Today, Nestle is the biggest food company in the world.
Since January of 2017, Nestlé has been led by CEO Mark Schneider. Schneider is joined by Executive Vice President and CEO (Americas), Laurent Freixe, Executive Vice President and CEO (Asia, Oceania, and sub-Saharan Africa), Chris Johnson, as well as Executive Vice President and CEO (Europe, Middle East, and North Africa), Marco Settembri.
Nestlé has made no secret of its desire to transition into the healthy foods market, and solidified that stance when it was announced on January 16, 2018 that they would be selling their U.S. candy business to Ferrero, the Italian company best known for Nutella, for $2.8 billion. In May of 2018, Nestlé announced that it had reached a partnership deal with Starbucks (SBUX) allowing the food company to sell and distribute Starbucks products around the world. The deal was valued at more than $7 billion and has led to the creation of Nestlé-made Starbucks products for home use.
Nestlé's Revenue Growth
According to its 2018 annual report, Nestlé generated sales of CHF91.4 billion (about $93.4 billion) for that year, up from CHF89.6 billion the year prior. This resulted in basic earnings per share of CHF3.36, up considerably from CHF2.31 for 2017.
Nestlé has maintained its status as one of the most successful food and beverage companies in the world thanks in large part to its acquisitions and subsidiary brands. Today, Nestlé products include confections, coffee, bottled water, breakfast cereals, healthcare nutrition, soups and sauces, frozen foods and pet food products, among many others. Below, we'll take a closer look at many of Nestlé's largest and most important subsidiaries.
Nestlé Purina PetCare is a wholly owned subsidiary based in St. Louis, Missouri. Nestlé acquired Purina in 2001 for $10.3 billion. Today, Nestlé Purina PetCare is considered a leader in global pet care sales. In 2018, pet care represented a whopping 28.4% of Nestlé's sales, accounting for CHF8.8 billion. Nestlé has positioned itself as a market leader in this space, with popular brands such as Friskies, Fancy Feast, Mighty Dog and Alpo. 2018 was a particularly strong year for Purina in Latin America, where the brand saw sales equivalent to CHF1 billion.
Recently, Purina has focused on updating products to include more recognizable ingredients and simpler ingredient lists. The company has seen strong results from campaigns aimed at addressing the trend of natural products.
Nestlé merged its U.S. ice cream business with Dreyer's Grand Ice Cream in 2002. The deal was valued at $2.4 billion and gave Nestlé control of the new company. Nestlé, which already manufactured the Drumsticks brand, gained Häagen-Dazs and Edy's brands as well as a national distribution system. At the end of 2018, Nestlé reported that milk and ice cream products comprised 22.5% of sales or CHF7 billion for the year. Nestlé has seen a strong demand for healthier offerings and has invested in clean labels, pure ingredients and products free of artificial colors and flavorings. In 2017, Nestlé remained the market share leader in the super premium, frozen snacks and premium categories despite losing market share in each category since 2011. The company continues to invest heavily in its ice cream marketing to maintain market share and appeal to changing consumer tastes.
3. Gerber Products Company
Founded in 1927, Gerber was acquired by Nestlé in 2007 for $5.5 billion. Company sales the same year totaled $1.95 billion. In 2018, Nestlé's Nutrition and Health Science division accounted for CHF2.9 billion in sales, or 9.3% of the company's total sales.
The global baby food market is forecast to be worth over $76 billion by 2021. Prior to the Gerber acquisition, Nestlé had no major presence in the U.S. baby food market, and it mainly served the Brazilian and Chinese markets. In recent years, Nestlé has prioritized the development of non-GMO and organic products in order to expand the brand.
4. Nestlé Waters
Nestlé Waters is one of the leading bottled water manufacturers in the world. Including dozens of popular brands like Nestlé Pure Life, Poland Spring, Arrowhead and San Pellegrino, this segment saw sales of CHF7.9 billion in 2018, representing organic growth of 2.1%. Much of the recent success of the Nestlé Waters segment is thanks to price increases in North America and the continued success of the San Pellegrino and Perrier brands, particularly in Europe.
DiGiorno is a wholly owned subsidiary of Nestlé and was acquired from Kraft Foods in 2010 for $3.7 billion. Kraft wanted to shed the DiGiorno portfolio to focus on confectioneries, some of the same products that made Nestlé so successful. The portfolio includes brands such as Tombstone, Jacks, California Pizza Kitchen and Delissio. The fit made sense for Nestlé, which already has many other brands in the U.S. frozen foods market. The prepared dishes and cooking aids division comprised 13.2% of sales in 2018, generating CHF12.1 billion in sales. DiGiorno continues to be the undisputed champion of the U.S. frozen pizza aisle.
6. Atrium Innovations
Nestlé announced on December 5th, 2017 that it would buy dietary supplements manufacturer Atrium Innovations for $2.3 billion. The acquisition marks Nestlé's latest push into medical nutrition. Atrium adds multivitamins, probiotics and more to Nestlé's vast portfolio. Before being acquired, Atrium's 2017 sales were expected to top $700 million.
Nestlé owns roughly 2,000 brands, and the large majority of those products are not included in this list. Further, the company is always modifying and expanding its list of product offerings. For instance, in April of 2019 it was revealed that Nestlé would buy a minority stake in Independent Vetcare Group International for an undisclosed sum. Although this company may not appear to be linked to Nestlé's typical offerings of food and beverage products, it is in fact closely tied to the Purina PetCare line.
One of the primary ways that Nestlé has expanded and has become a behemoth of the food and beverage world is through its aggressive expansion policy. It's likely that Nestlé will continue to explore options for acquisitions and new subsidiaries so long as these prove to be profitable into the future. Part of the company's expansion strategy also involves the divestment of subsidiaries which are no longer profitable; the sale of the confectionery arm was an example of this strategy. In the company's 2018 annual report, it suggested that "small to medium-sized acquisitions can offer a fast and cost-effective way to embrace new capabilities or business models. We are also actively divesting businesses that are non-core and where we have limited ability to win. "