Imagine waking up to headlines about a massive corporation slashing thousands of jobs, only to see its stock price shoot up by 7%—that's the rollercoaster reality hitting Nestle today, and it's sparking intense debate about the true cost of corporate turnarounds. But here's where it gets controversial: is boosting shareholder value worth the human toll on employees? Let's dive into the details, breaking it down step by step so everyone can follow along, even if you're new to the world of business news.
Nestle, the Swiss-based behemoth known for icons like Nescafe instant coffee—those familiar jars lining supermarket shelves in places like Encinitas, California—revealed on Thursday that it's set to eliminate 16,000 positions. This bold strategy comes from its fresh CEO, Philipp Navratil, who's aiming to supercharge a recovery at the consumer goods powerhouse. To break it down simply, the company plans to trim 12,000 office-based or 'white-collar' roles right away, while another 4,000 cuts will unfold gradually over the next two years. The goal? To streamline operations and make everything run more efficiently, much like how a busy kitchen might reorganize to whip up meals faster without wasting ingredients.
And the market loved it—Nestle's shares jumped 7.2% by day's end. Under the previous leadership of Laurent Freixe, the firm had already kicked off a cost-cutting initiative targeting 2.5 billion Swiss francs, which is about $3.14 billion in U.S. dollars. Now, with Navratil at the helm, they're ramping that up to hit 3 billion Swiss francs by 2027. It's all part of trying to navigate choppy waters, including economic uncertainties like U.S. tariffs and spiking costs for basics like cocoa and coffee beans.
The good news? Nestle's third-quarter results showed a stronger-than-anticipated organic growth rate of 4.3%. For beginners, organic growth means sales increases from core business activities, excluding things like currency fluctuations or acquisitions—it's the real measure of how well the company is doing on its own merits. Even more encouraging, something called Real Internal Growth (RIG)—think of it as a gauge of underlying volume sales minus pricing effects—swung back into positive territory, climbing 1.5%. Brands like Nespresso and KitKat are shining here, with smart investments finally paying dividends and easier comparisons to past periods helping the cause. Just to clarify, RIG helps show if customers are buying more products or just paying higher prices due to inflation; Nestle's rebound here is like turning a struggling team into winners by focusing on strengths.
That said, the second quarter had been a disappointment with RIG dipping negative, causing shares to lag. Analysts from HSBC had predicted a comeback, thanks to simpler year-over-year comparisons, better internal efforts, and less sensitivity to price hikes. And this is the part most people miss: while the overall picture brightened, Greater China dragged things down, shaving 80 basis points off organic growth and 40 off RIG. (For context, a basis point is just 0.01%, so these are small but meaningful dents.) Nestle reassured investors that fresh leadership is in place and actively transforming the region—it's like rebooting a underperforming store location with new strategies.
Jon Cox, head of European consumer equities at Kepler Chevreux, praised the approach: 'The emphasis on spotlighting successful products and fixing the weak ones drove those unexpectedly strong third-quarter sales.' He added, 'It feels incredibly upbeat, and operationally, it seems like the company has hit a turning point, with the summer's management drama fading away. I anticipate a very favorable stock response.'
But let's talk about that turbulent year—Nestle, headquartered in Vevey, Switzerland, has faced relentless investor scrutiny. Its operating results and stock have underperformed rivals, with shares plunging over 40% from their December 2021 high and dropping 9% in the last year. The drama peaked this summer when CEO Laurent Freixe was removed over an undisclosed personal relationship breach on September 1. His replacement, Philipp Navratil—formerly leading Nespresso's success—vowed to stick to the company's strategic path, intensify execution, and push value creation hard.
Barely two weeks later, pressure from big shareholders forced an early exit for Chairman Paul Bulcke, tied to how he handled Freixe's situation. Bulcke, a past Nestle CEO, passed the baton sooner than expected to Vice Chairman Pablo Isla, a former Inditex (think Zara fashion empire) boss, who was slated for April 2026 anyway. Analysts, including those at Deutsche Bank, note this new duo must rebuild investor confidence. 'Long-term holders... might need convincing from someone less familiar in the market before warming up,' they wrote in September.
Looking ahead, the immediate priorities include reviving volume sales and the Chinese operations. But for patient investors, key updates are awaited on potentially offloading part of the flagging water business, revamping the vitamins sector, and deciding the fate of that 20% stake in L'Oreal. As Navratil put it in the earnings statement, 'We need to push harder and quicker to build on our growth.' He emphasized a disciplined focus on resource deployment, zeroing in on high-potential areas—like betting big on winners while phasing out the rest.
Now, here's the controversial twist: In a world where job security feels increasingly fragile, Nestle's job cuts might seem ruthless, especially when paired with executive changes and big plans for value creation. Some argue it's a necessary evil for long-term health, preventing worse outcomes like bankruptcy that could hurt even more people. Others see it as corporate greed, prioritizing profits over livelihoods—after all, how can a company celebrate stock gains while laying off workers? And what about those cost savings? Is accelerating them just a band-aid, or a real fix? We might even wonder if focusing on 'winners' means abandoning communities or products that have loyal fans.
What do you think? Does the end justify the means in corporate shake-ups like this? Should companies like Nestle have a bigger responsibility to balance profits with people? Or is this just smart business in tough times? Share your takes in the comments—do you agree with the job cuts, or see a better way forward? Let's discuss!
