Nestlé Gives Loeb What He Wants: New Margin Targets, Faster Buybacks--Update

By Saabira Chaudhuri Features Dow Jones Newswires

Nestlé SA set a new profit-margin target and said it would accelerate previously announced share buybacks ahead of a much-awaited investor day that kicks off Tuesday in London.

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The announcement comes as Nestlé has faced pressure from activist investor Dan Loeb--who in recent months has built up a 1.3% stake in the packaged-foods company--to outline a formal profit-margin target among other shareholder-friendly moves.

Tuesday, the Vevey-based company said it would strive for a trading operating profit-margin target of 17.5% to 18.5% by 2020 on an underlying basis, or stripping out restructuring, impairment and other one-time charges. In July, Nestlé reported an underlying trading operating-profit margin of 15.8% for the half year, flat from a year earlier on a reported basis and up 10 basis points at constant currency.

Nestlé also said it is making changes to the $20.8 billion share-buyback program it announced in June. While the buybacks will still be made in the three years to 2020, they will be spread out evenly over this time rather than being back loaded in 2019 and 2020 as previously announced.

Mr. Loeb in a June letter to investors urged Nestlé to adopt a margin target saying savings made in recent years had failed to fuel faster organic sales or earnings growth. He said Nestlé's margins were at the low end of its peers, who are mostly targeting high-teens to low 20s margins.

The Third Point LLC hedge fund founder has also pushed Nestlé's Chief Executive Mark Schneider to sell the company's stake in L'Oréal SA, launch share buybacks and take on more debt, and consider selling as well as buying new assets.

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Mr. Schneider, a longtime health-care executive, took the reins at Nestlé at the start of this year and since then has announced several changes aimed at jump-starting growth. Nestlé has repeatedly missed an internal sales target, prompting its new CEO in February to say he is scrapping these. A few months later he said Nestlé would look to sell its U.S. confectionery arm, which houses brands like Crunch and Butterfinger.

After Mr. Loeb in June publicly disclosed his $3.5 billion stake in Nestlé and listed his demands, Mr. Schneider announced the share buyback, and clarified that Nestlé would focus on investing in the high-growth areas of petcare, coffee, infant nutrition and bottled water while also pursuing growth opportunities in consumer health care.

In recent months Nestlé has made a string of small acquisitions, buying stakes in premium coffee chain Bluebottle, delivery startup Freshly and plant-based protein maker Sweet Earth. Last week is said it was cutting about 400 of the 550 employees at its Galderma skin care research and development facility in France as it pivots away from topical prescription creams for skin. A spokesman said about 100 of these employees would have the option of joining a new center focused on biologics and systemic treatments.

With Tuesday's announcement, Nestlé has largely met three of Mr. Loeb's four demands. The company didn't address its 23.29% stake in L'Oréal, in focus following the death last week of Liliane Bettencourt, heiress to the L'Oréal fortune. Her death allows Nestlé or the L'Oréal family to increase their stakes in the cosmetics company in six months.

Mr. Loeb in June said it was a good time for the consumer goods company to sell its stake in L'Oréal, giving shareholders the ability to choose if they want to invest in Nestlé or a combination of the two companies. Tuesday, Nestlé didn't immediately respond to a request for comment on the stake.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

September 26, 2017 03:07 ET (07:07 GMT)