Nestlé SA, the maker of Nescafé coffee and Kit Kat chocolate bars, on Feb. 15 reported earnings for 2017 that beat expectations and said it remained committed to its stake in L'Oréal SA despite the expiry of a shareholder agreement between the company and the controlling shareholders of the French cosmetics company.
However, the nutrition, health and wellness company said in a statement that it had decided to explore strategic options, including a potential sale, for its Gerber Life Insurance business, which it acquired as part of the Gerber acquisition from Novartis AG in 2007. The life insurance business reported 2017 sales of CHF840 million.
Nestlé said it remained fully committed to retaining and developing the Gerber baby food business, which was an integral part of its infant nutrition growth platform.
The Vevey, Switzerland-based company said its 23.2% shareholding in L’Oréal was an important investment and that it remained "committed to the company that has given us very good returns over the years."
A shareholder pact between Nestlé and the Bettencourt family is due to expire March 21, six months after the death of Liliane Bettencourt, daughter of L’Oréal founder Eugène Schueller. The Bettencourt family sold a roughly 30% stake in L'Oréal to Nestlé in the early 1970s to shield the business from nationalization by the French state. In 2014, L'Oréal repurchased an 8% holding that it duly canceled.
"In order to maintain all available options for the benefit of Nestlé’s shareholders, the board of directors has decided not to renew this agreement," Nestlé said in its statement. "We do not intend to increase our stake in L’Oréal and are committed to maintaining our constructive relationship with the Bettencourt family."
L’Oréal faced questions about the Nestlé investment during a conference call Feb. 9. Jean-Paul Agon, chairman and CEO of L'Oréal, told analysts and investors during the conference call that a decision over the investment was up to Nestlé, although L'Oréal was prepared to buy it. "It is in their hands," he said. "If Nestlé one day decides to sell, we are ready."
Nestlé posted underlying earnings per share for the fiscal year ended Dec. 31, 2017, of CHF3.55, up from CHF3.40 for 2016 and ahead of an S&P Capital IQ-compiled mean consensus of analysts' estimates of CHF3.54.
Net profit for 2017 fell 15.8% year over year to CHF7.18 billion from CHF8.53 billion mainly due to an impairment of goodwill related to Nestlé Skin Health.
Sales increased to CHF89.79 billion from CHF89.47 billion. Organic growth of 2.4% was at the low end of the company's expectations following slow growth in the fourth quarter, Nestlé said. It added that its underlying trading operating profit margin was ahead of expectations, up 50 basis points in constant currency and 40 basis points on a reported basis to 16.4%.
"Organic sales growth is expected to improve in 2018 and we are firmly on track for our 2020 margin improvement target," Nestlé CEO Mark Schneider was quoted as saying.