Explainer-Nestle's new CEO faces full plate of problems

By Paolo Laudani

(Reuters) -The abrupt dismissal of Nestle CEO Laurent Freixe has catapulted Philipp Navratil into the top job overnight, tasking him with reversing a prolonged share price decline and reigniting sluggish sales at the world’s largest consumer goods company.

   Nestle, the maker of products from KitKat chocolate to Nesquik, fired Freixe on Monday for failing to disclose a romantic relationship with a subordinate. The board appointed Nespresso chief Navratil as his successor with immediate effect.

Navratil, a 49-year-old Swiss and Austrian citizen, is a Nestle veteran. He joined the firm in 2001 after a business degree and rose through the ranks, spending many years in Latin America and being made head of Nestle Nespresso last year.

He joined the Nestle executive board on January 1 this year.

His sudden promotion marks another turbulent chapter for the Swiss giant, coming just a year after the ouster of former CEO Mark Schneider and only months after the announced departure of its long-serving chairman.

WEAK SALES, STRONG FRANC AND TARIFFS

Nestle has struggled to maintain momentum amid a global economic slowdown that has pushed consumers toward cheaper alternatives. Nespresso, in particular, has faced a challenge selling its premium-branded products.

In first-half results at the end of July, Nestle reported a slower than expected sales volume growth, citing the negative impact from U.S. trade tariffs and currency exchange rates.

STOCK SLIDE

Navratil inherits a stock that has lagged behind European peers since Freixe took the top job, shedding nearly a third of its value over the past five years.

Shares dipped another 0.8% by 1118 GMT on Tuesday, reflecting investor unease rather than outright panic.

"There might now be disruption to the company's turnaround plan as new boss Philipp Navratil gets up to speed and uncertainty as to whether he will go down the same path as his predecessor," said AJ Bell investment director Russ Mould.

PUBLIC IMAGE

A top executive ousted for a code of conduct breach is a thorny public-image issue for companies as management conduct comes under intense scrutiny more widely.

Energy giant BP's former CEO Bernard Looney and McDonald’s CEO Steve Easterbrook were both removed for failing to disclose relationships with colleagues, while Kohl's fired CEO Ashley Buchanan after an investigation found he pushed for deals with a vendor with whom he had a personal relationship.

Ingo Speich at Nestle investor Deka said the Swiss firm needed to bring back "calm waters".

Vontobel analyst Jean-Philippe Bertschy said that one of the incoming CEO's first priorities "will be to pull Nestle out of its current cycle of negative headlines."

ANOTHER INSIDER: A 'SWISS COMPROMISE'?

The appointment of another insider after Freixe took Schneider's job one year ago has raised some eyebrows.

"We expect that investors will question the appointment of another Nestle insider, and perhaps also the seemingly rapid timescale of his appointment which presumably implies that no extensive external search was undertaken," Bernstein said.

However, analysts at Zuercher Kantonalbank said that at a first glance, the new CEO appointment is a good "Swiss compromise" between the two predecessors and he is likely to bring more fresh air from within.

By promoting Navratil, Nestle is banking on a next-generation leader, said Vontobel's Bertschy.

"We know Philipp as exceptionally straightforward, ambitious, and relentlessly focused on results," he said.  

(Reporting by Paolo Laudani in Gdansk; Editing by Adam Jourdan and Louise Heavens)