If you’re having a tough day & need a smile to lift your spirits, look at any Nestle IR presentation, you’ll see so many smiling faces with shiny white teeth, you’ll think they sell toothpaste, not chocolate.


Although coffee in the morning and chocolate at night is enough to make anyone smile, right?

Unless, like me, 24x earnings makes you wince

But this is the “Gourmet” of companies on “Quality Street”, the “Carnation” in the onion patch, isn’t it?

Well, I think lurking beneath all this “happiness” are a few home truths

and I don’t mean, chocolate doesn’t make white teeth

Statista tells me worldwide coffee revenue has grown 2.3% p/a in USD from 2012 to 2022

Worldwide chocolate consumption has grown – think dark chocolate and flavinoids

And pet food has been a hot growth story

So with all this in mind, what do you think Nestle’s revenue CAGR has been over the past 10 years?

Mid-single digits?

Nope, 0.2% p/a

Is that all?

Yes, I’m afraid so

CHF 90bn in 2012 has only grown to CHF 91.3bn over the trailing 12 months

Why, have they done lots of disposals?

They’ve been busy on the corporate front – there’s a tab for every year outlining all their acquisitions and disposals on their “Understanding Nestle” page

But over the 10 years, I make it a net 900m in acquisitions

Now with their brand, they must hire the “smarties” people in the world so what has all this corporate activity done to operating income over 10 years?

Gone from 13.3bn to 11.4bn


Yes, -1.7% p/a


What’s EBITDA done because that excludes the amortization of intangibles?

Also fallen 16.4bn to 15bn

Oh dear, this is bitter

And Cash from Operations?

Down 15.7bn to 13bn


Well Diluted, Adjusted EPS from Continuing operations per share was 3.31 in 2012

And analysts think they’re going to earn 4.33 in 2022

but that’s only 2.7% growth p/a

Yes and share repurchases gave you 1.5% of that

Has their share price performed better?

Oh yes, +6.8% p/a but include the dividend for a total return of 9.8% p/a

That’s great but earnings growth has only been 2.7% p/a – surely no reason for a re-rating

No, but remember the 10yr interest rate in Europe averaged less than 0.4% for most of these 10yrs & inflation was the square root of nothing

In that environment, a 3% divi yield was “sweet”

Nestle became a “bond proxy” paying 2.6% more than bonds

And they raised divi’s faster than earnings and took on debt to buyback stock at 24x earnings

But NOW the bond yield is 1.9% and the expected dividend yield is only 2.5%

Yes but Return on Equity has grown?

Well if you buy back shares at 24x and 4x book value, that rapidly reduces equity

“manufacturing” a higher ROE…

In truth – it’s akin to investing at 4%

Is the future bright?

I don’t think so – competition is fierce & won’t tap water, private-label chocolates & coffee be more appealing in recessions?

I think a de-rating of all on Quality street is next