Nestlé SA put its U.S. confectionery business up for sale, looking to shed its Butterfinger and Crunch candy bars as it grapples with how to cater to U.S. consumers’ increasing demand for healthy snacks.
The unit could be worth as much as $3 billion, based on analysts’ valuations of similar businesses. The Swiss-based consumer giant said its U.S. confections business generated about 900 million Swiss francs ($922 million) in sales last year, or 3% of its total U.S. sales.
A U.S. asset sale would be the boldest move yet by Chief Executive Mark Schneider, who took the top job in January after years as a health-care company executive. It has fallen to him to execute one of the Swiss giant’s long-held ambitions — to push more aggressively into healthier foods and make its best-selling products like Nesquik chocolate mix more appealing to health-conscious consumers.
By shedding its U.S. candy business, which also includes Baby Ruth and Nerds, Nestlé would be able to focus more on faster-growing sectors it identified at an industry forum earlier this year, such as coffee, pet food, water and health sciences.
Across the industry, sugary drinks, salty snacks, candy and chocolate have all been vulnerable to cost-cutting. “Chocolate is [a] category under pressure amid the trend to health or fitness bars,” said Jon Cox, head of Swiss equities at Kepler Cheuvreux.
Nestlé is the No. 3 confectioner in the world by market share behind market leader Mars Inc. and second-ranked Mondelez International Inc., and No. 4 in the U.S. behind Hershey Co.
The U.S. is Nestlé’s largest market overall, with annual sales of about $27 billion, 51,000 employees and 87 factories, which churn out dozens of well-known brands such as DiGiorno pizza, Haagen-Dazs ice cream and Gerber baby food. In recent years, Nestlé has had some success turning around sales of its frozen-food brands, namely Lean Cuisine.
The decision to potentially leave the U.S. candy business signals new-found decisiveness under Mr. Schneider, said Jefferies analyst Martin Deboo. He said the likely buyer would be a smaller food maker or private-equity firm but wouldn’t rule out Hershey or Mars.
Nestlé said the internal strategic review now under way doesn’t include its Toll House baking products, nor its global confectionery business, which is much larger than the U.S. business and includes the Kit Kat brand. Kit Kat is licensed by Hershey Co. in the U.S. and by Nestlé in other parts of the world. Nestlé said it remains committed to its global confectionery business, particularly Kit Kat.
The pressure on chocolate makers has set off a round of consolidation and cost-cutting across the confectionery industry. Last year, Mondelez International Inc. launched an unsuccessful bid to buy Hershey, in a deal that likely would have topped $25 billion. Mondelez said it’s pleased with its U.S. candy business. Hershey, meanwhile, has acquired a chocolate-covered fruit brand and a beef jerky company in recent years to get a bite of healthier-minded consumers.
Earlier this year, Mr. Schneider ditched Nestlé’s longstanding organic growth target of 5% to 6%, dubbed “the Nestlé model,” after the company missed it for a fourth-straight year.
Italy’s Ferrero SpA, the privately held maker of Nutella and Tic Tac, and the global industry’s fourth-largest player, has expanded aggressively recently through deals. It pushed into the U.S. by snapping up Chicago-based Fannie May Confections Brands earlier this year.
U.S. candy makers face competition not only from healthier snacks, but also from anything that occupies consumers’ idle time — including technology and social media, said Nielsen analyst Jordan Rost. “They are fighting against more competitors than ever before,” he said. At the same time, food makers are under pressure to aggressively lower costs to maintain profit margins amid the slower sales.
U.S. companies including Kellogg Co. and Campbell Soup Co. have closed factories and cut corporate head counts. Earlier this year, Hershey said it would cut 15% of its global workforce in an effort to boost profitability over the next two years.
Sales at large packaged-food companies globally, and particularly in the U.S., have stalled as consumers flock to fruit-and-nut bars and Greek-style yogurt. Startups have been fast to launch trendy good-for-you items, stealing market share from traditional giants.
Nestlé’s strategic review follows similar studies at its competitors. British consumer-goods giant Unilever PLC said earlier this year it would review whether to sell its margarine and spreads business following an unsuccessful $143 billion takeover bid by Kraft Heinz Co.
Reckitt Benckiser PLC, meanwhile, is shopping its food unit, including French’s mustard. And Conagra Brands Inc., owner of Slim Jim jerky and Chef Boyardee canned pasta, sold its Wesson cooking oil brand to J.M. Smucker Co. last month.
Executives at these companies say by letting go of smaller or underperforming brands, they can focus more time and money on the ones that have more potential for growth.
Nestlé has made efforts to revive its U.S. business by offloading lackluster brands like Juicy Juice, PowerBar and its Jenny Craig diet business and combining purchasing and other operations to reduce costs.