2021 CAGNY Report Day 4: Nestle Transforms, Coca-Cola Looking for Growth

Feb. 19, 2021
On the fourth and final day of the Consumer Analyst Group of New York meeting, Nestle talked of its environmentalism and Coca-Cola focused on "emerging stronger" – from the pandemic and its own sales doldrums.

On the fourth and final day of the Consumer Analyst Group of New York meeting, Nestle talked of its environmentalism and Coca-Cola focused on "emerging stronger" – from the pandemic and its own sales doldrums. You can read about Day 1, Day 2, and Day 3 here. 

The pandemic was particularly unkind to Coca-Cola: Sales dipped every quarter in 2020, including a 28% drop in Q2. For the year, net revenues declined 11% to $33 billion. The company's sales were $44 billion as recently as 2015, but they've dropped every year since (although 2019 showed a small uptick to $37 billion).

"In a way, we've used the pandemic as a catalyst to accelerate a transformation already under way," said Chairman and CEO James Quincey. Part of that transformation was the trimming of SKUs. The company is on target to reduce "master brands" from 400 to 200. If that sounds extreme, those brands account for only 2% of volume and 1% of revenue.

Quincey also talked of the company efforts to reduce plastic. He says Coca-Cola will reduce cumulative virgin plastic use by 3 million metric tons by 2025, the equivalent of a full year of its plastic use.
Speaking of reducing … CFO John Murphy hopes the company can reduce its tax liability in a long-running dispute with the U.S. Internal Revenue Service. He revealed the company could be liable for $12 billion in back taxes and fines dating back to a 2015 audit by the IRS, which took issue with the company's use of “transfer pricing,” where Coca-Cola licenses intangible property — such as the use of Coca-Cola’s brand names and formulas -—to its foreign licensees.

Despite that scary number, Murphy says the company believes it will prevail; however, he did accrue a tax reserve of $438 million for the year ended Dec. 31, 2020.

Nestle, on the other hand, has enjoyed three consecutive years of "organic" sales and margin growth, according to Francois-Xavier Roger, an executive vice president and CFO – although total 2020 sales were CHF 84 billion, down from CHF 92.5 billion. That shrinkage has been by design, as the company sheds product lines deemed less "healthy," in both financial and nutritional terms.

The sale of U.S. candies and the transfer of ice cream into a joint venture company are steps toward healthier products. This week's sale of the North American waters brands relieves Nestle of some of the environmental baggage.

Roger said he expects the company to be carbon-neutral by 2050. "Sustainability is integral to our growth strategy," he said, but that doesn't come at just any expense. "Sustainability investments are expected to be earnings-neutral," he added.

Despite Nestle being such an international company, 90% of sales in the Americas are made locally, noted Laurent Freixe, an EVP and CEO of Zone Americas. He added that a lot of current effort is going toward reducing packaging.

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