A Deep Dive into Nestle: From Company History to Financial Analysis
In this blog post, the focus will be on a renowned company, Nestle, and explore its history, business, financial statistics, and branding strategy. Furthermore, it will discuss the potential reduction in the stock price due to a proposed stock split.
Key Takeaways
- Nestle's financials, including growth in sales, profit, stock price, and outstanding returns, are impressive in the last five years.
- Nestle has a strong market presence with the majority of its products holding the number one position in their respective categories.
- The proposed stock split by Nestle has the potential to trigger increased trading volume, leading to better price discovery.
Delving into Nestle's History & Business
Established in India in 1912 as the Nestle Anglo Swiss condensed milk company exports limited, Nestle's relationship with India has been extensive. The first production facility was set up in Moga, Punjab, in 1961. Presently, Nestle SA, the holding company based in Switzerland, owns a 62% stake in Nestle India.
The company comprises four major segments:
- Milk products and nutrition
- Prepared dishes and cooking aids
- Confectionary
- Liquid and powdered beverages
Among these, milk products and nutrition contribute to 40.5% of the total revenue, while the remaining categories contribute to 31.6%, 16.8%, and 11.1% respectively.
Nestle and the Indian Market
In the Indian baby food market, Nestle is quite powerful, particularly in the infant cereal category, with Cerelac holding a 96.5% share of the market. This dominance has occurred partially due to the Infant Milk Substitutes Act, which disallows direct or indirect advertising for baby milk formulae and cereals, thus limiting competitors.
Prepared dishes and cooking aids, such as the omnipresent Maggie noodles, are also robust contributors to Nestle's revenue. In 2022, Maggie maintained market leadership and achieved the highest-ever distribution, according to the Nelson report.
Their spectrum of items under confectionary and beverages, too, command significant market position and brand recognition.
Analysis of the Industry and Branding Strategy
Nestle's branding strategy is product-based, where the product name stands out more than the brand name. This approach allows the company to target a variety of customers. It also protects other products from being affected by any negative publicity on a specific product.
The Food and Beverage industry, which includes loose and packaged food, has a market size of $800 billion. The segment of packaged food and beverage stands at $100 billion. Nestle fits into the $40 billion category under this portion, which indicates a lot of room for expansion within the industry.
Dipping Into Nestle's Financials
Nestle's financials testify to its excellent performance. It displayed tremendous Return on Capital (ROC at 138%) and Return on Equity (ROE at 108%). Given these strengths, Nestle's stock price commands a premium over the industry average.
From 2011, barring 2015 due to the Maggie incident, Nestle's sales numbers displayed an upward trend. The company's annual sales growth (compounded over 10 years) stands at 7%, increasing to 15% in the trailing twelve months. Moreover, its sales growth (compounded over 5 years) stands at 11%.
The Expected 90% Drop – Stock Split
Nestle has announced a stock split in the ratio of 1:10, implying the face value of the stock will be dropped from the current $10 to $1. This reduction will be reflected in the market price, driving it down almost by 90%. However, the number of shares held by each shareholder will increase proportionately, conserving the overall value.
Conclusion
Nestle continues to expand, innovate, and prosper. Its robust branding and marketing strategies, impressive financial performance, and ever-growing product portfolio make it a promising prospect in the Food and Beverage industry. With the forthcoming stock split, this might be a fascinating company to watch.