Nestle Plans to Sell Underperforming Units - Update

  ZURICH  -  Nestle SA (NSRGY, NESN.VX) plans to clean out its cupboard.

  On Tuesday, Chief Executive Paul Bulcke told analysts that Nestle had

identified a group of underperforming product lines it would look to sell after

reviewing the food company's sprawling portfolio.

  Nestle currently has 1,800 business "cells," with a heavy presence in

chocolate, such as KitKat bars; coffee, including Nescafe and Nespresso

infant-nutrition products, including Gerber; packaged-food brands such as

Buitoni, Hot Pockets and Lean Cuisine; and the Jenny Craig weight-loss program.

  Divesting itself of poorly performing businesses--a relatively new strategy

for the Vevey, Switzerland, company-- would deflect investor and analyst

criticism that Nestle doesn't move quickly in dealing with its laggards, a

tentativeness that has weighed on its overall performance.

  "If something doesn't work there are two ways to go," Mr. Bulcke said. "Fix

it or get rid of it."

  The decision to sell underperforming businesses marks a shift in Nestle's

approach to managing its food empire, which also includes Haagen-Dazs ice cream

and Purina pet food. The company has historically clung to brands and

businesses, adjusting strategies in an attempt to improve performances.

  But now, Nestle has quietly experimented with slimming its business lines,

selling an Australian ice-cream business and two French water brands as it

seeks to concentrate its firepower on more-successful businesses.

  The sales come amid pressure for Nestle to improve its overall performance

after missing expectations in recent quarters. The company said in August that

first-half sales fell short of forecasts and warned it would struggle to meet a

long-standing annual growth target.

  Brands that Nestle could sell include the Jenny Craig weight-management

business, where sales have fallen amid competition from online diet sites

mounts and discretionary-spending declines. Already, Nestle executives have

changed the way they speak about the business, which the company bought in

2006.

  Earlier this year, Nestle had spoken of improving the performance of the

Jenny Craig business, which Nomura forecasts to generate revenue of $425

million this year, down from $472 million in 2012.

  But at the analyst meeting, Luis Cantarell, head of Nestle's nutrition

business, said the company was now "evaluating strategic options" for the

business, terminology that is often code for a sale.

  Last week, Reuters reported Nestle's PowerBar business, which had sales of

roughly $200 million last year, was up for sale.

  The brand, which Nestle bought in 2000, has faced growing competition in the

segment it pioneered with competitors, including Clif Bar & Co., grabbing more

sales. Nestle didn't comment on the possible disposal.

  Chief Financial Officer Wan Ling Martello said struggling businesses wouldn't

be automatically "put on the block."

  Nestle would look at whether a business could be improved and how long this

would take, said Ms. Martello. "If not, maybe this is a business we are not the

best owner of and therefore we will walk away from it."

  "This is a mini-revolution for Nestle," said Bank Vontobel analyst

Jean-Philippe Bertschy of the company's planned divestitures. Mr. Bertschy said

the company was looking to disposals as a way to increase return on invested

capital.

  Nestle isn't the only food company selling off businesses to concentrate on

brands with better prospects. Unilever, for example, has been shedding poorly

performing food businesses, such as Skippy peanut butter and Wish-Bone salad

dressing, to concentrate on its household and personal-care business.