NSRGY Nestle SA (PK)

By Saabira Chaudhuri 

Nestlé SA said it would overhaul its struggling bottled-water arm, hoping to reinvigorate growth in a business grappling with rising competition, high costs and growing concerns about single-use plastic.

The world's biggest packaged-food maker said its water arm, which sells brands like Poland Spring, San Pellegrino, Pure Life and Perrier, would go from being a stand-alone, globally managed business with headquarters in France, to one managed locally in Nestlé's various regions. It also said the head of Nestlé Waters, Maurizio Patarnello, would leave the company by the end of the year.

The change mimics a restructuring Chief Executive Mark Schneider pushed through for Nestlé's infant nutrition arm, where the company says results have since improved.

Nestlé Waters currently employs 28,000 people. A spokesman declined to comment on whether there would be job losses. About 60% of Nestlé's bottled-water sales come from local or regional brands -- like Poland Spring in the U.S. Waters makes up about 8% of overall sales and under 5% of Nestlé's profits, according to Jefferies.

The restructuring came as Swiss-based Nestlé on Thursday said sales in the nine months ended Sept. 30 were 68.37 billion Swiss francs ($68.71 billion), compared with 66.42 billion francs in the same period last year. Organic growth -- which strips out the effects of currency movements, mergers and acquisitions -- was 3.7% for the first three quarters, mostly driven by higher volumes, meeting analyst estimates. It also backed its 2019 estimates and said it would return 20 billion francs to investors over the next few years, primarily through share buybacks. The company didn't release profit figures.

In the water business, revenue was flat over the nine months, while volumes dropped 2.2%.

Water is a "problem category" for Nestlé, said Jefferies analyst Martin Deboo earlier this month, saying the business is losing share to rivals in the U.S., its biggest market. Nestlé last year began selling sparkling, flavored water under Poland Spring, Arrowhead and other brands in the U.S. but the company has struggled to stand out in an increasingly crowded category. Apart from LaCroix -- the market leader -- Coca-Cola Co. and PepsiCo Inc. have rolled out sparkling-water competitors, while startups and private-label seltzer brands abound.

On Thursday, Nestlé said organic growth in its North America water business had been flat and declined in Europe, where it sold less water than hoped over the past summer. Bottled water makers -- particularly in Europe -- are facing consumer and regulatory pressure over their use of single-use plastic, amid a backlash about waste.

Since taking over in 2017, Mr. Schneider has tried to focus Nestlé's energies on a handful of core businesses he views as high-growth. Water is one of these, along with nutrition pet food and coffee. The company has faced scrutiny from activist investor Daniel Loeb to improve its financial performance and sell its stake in L'Oréal SA.

Mr. Schneider has made a string of changes including selling slower-growth, nonfood assets like its skin-health unit and has made big acquisitions like splashing out $7 billion to buy the rights to sell Starbucks Corp.'s coffee and tea in grocery and retail stores. The company on Thursday said it was creating a new strategy and business development role, which would be filled by its head of acquisitions, Sanjay Bahadur. The role is intended to help Nestlé identify new growth opportunities.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

October 17, 2019 04:01 ET (08:01 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.