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Nestlé has $20 billion to spend on deals or buying back shares

Nestlé shareholders could be in for another $20 billion windfall if the maker of Nespresso and KitKat fails to find businesses worth buying.

Nestlé, one of the world’s largest food companies, closed a $10.3 billion sale of its skincare business at the beginning of October and is now figuring out what to do with its growing war chest.

The company said in an earnings statement on Thursday that it could return as much as 20 billion Swiss francs ($20 billion) to shareholders between 2020 and 2022, primarily via share buybacks.

Nestlé is also stepping up its hunt for deals over the next few years and has created a new unit led by Sanjay Bahadur, current head of acquisitions and business development, which it said would identify “value-creating investments” in the food, beverage and nutritional health sectors.

“Should any sizable acquisitions take place during this period, the amount of cash to be distributed to shareholders will be adjusted accordingly,” it said.

Plans for another big cash handout follow share buybacks totaling 20 billion Swiss francs ($20 billion) between 2017 and 2019.

The Swiss company’s share price is up 32% this year, indicating just how strongly investors support CEO Mark Schneider’s shake up of the 153 year-old firm.

Nestlé reported sales growth of 3.7% for the first nine months of this year, in line with analyst estimates.

Growth was supported by strong momentum in the United States, its largest market, and “very strong growth” for Purina PetCare globally, Schneider said.

“Pet care had an outstanding quarter, while nutrition and health sciences, and prepared dishes also beat expectations,” Andrew Wood, senior research analyst at Bernstein, said in a note.

But the performance of the company’s powdered and liquid beverages business was disappointing, he added, “given ongoing progress with the Starbucks acquisition.”

Nestlé agreed a deal last year to sell Starbucks’ packaged coffees and teas around the world. It now sells Starbucks products in 34 countries and the acquisition of the license has boosted sales in the Americas, Nestlé said.

Nestlé confirmed its earnings guidance for 2019. The company expects sales growth of 3.5% and an increase in earnings per share.

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