By Saabira Chaudhuri 

Newly minted Nestlé SA Chief Executive Mark Schneider is facing the first big challenge of his short career in packaged foods.

Mr. Schneider indicated Monday he plans to hold steady on his own push to spur growth at the maker of Stouffer's frozen food and Nesquik chocolate milk, in the face of calls for radical change by activist investor Daniel Loeb.

Late Sunday, Mr. Loeb's Third Point hedge fund disclosed a $3.5 billion stake in Nestlé, demanding a raft of changes it said will boost margins and shares, including divesting its long-held stake in L'Oréal SA. In a short statement Monday, Nestlé responded by saying it keeps an "open dialogue with all our shareholders" but "remained committed to executing our strategy and creating long-term shareholder value." It said it had no further comment on Mr. Loeb's stake.

Messrs. Schneider and Loeb met in Switzerland about two weeks ago, according to a person familiar with the matter, to discuss the investor's ideas for how the company can grow.

The stake amounts to just 1.25% of Nestlé. But that makes Mr. Loeb one of the company's biggest investors, and the call comes at a time when Nestlé shareholders could find it hard to ignore: Years of slow growth has shaken Nestlé and its consumer-goods competitors, as they struggle to come to terms with changing consumer tastes and other headwinds.

Shareholders welcomed the Third Point investment, sending Nestlé's stock up more than 4% early Monday.

Last year, Nestlé's board plucked Mr. Schneider out of the health-care industry to help diversify from its slow-growing cash cows to healthier foods and products.

He moved quickly to shake things up himself. Shortly after taking the top job, he abandoned Nestlé's longstanding annual growth target, after years of Nestlé missing it. Earlier this month, he put Nestlé's U.S. confectionery business up for sale.

But he has also resisted some of the more radical approaches taken by some of his competitors. He is an outspoken critic of so-called zero-based budgeting, the cost-cutting technique rolled out by Brazilian fund 3G Capital at some of the U.S. consumer-goods giants it steers.

Jefferies analyst Martin Deboo said Mr. Schneider has some room to maneuver.

"We view (Nestlé) as a proud company with an enduring model," said Mr. Deboo. "We expect them to be wary of bending too readily, too publicly, to the views of an ultimately small shareholder."

Third Point's letter to investors on Sunday identified "a familiar set of conditions that make it ripe for improvement and change," saying "our recommendations to Nestlé management, if taken together, would dramatically improve both the growth profile and earnings power of the company."

Mr. Schneider--a dual U.S. and German citizen--spent the 13 years prior to Nestlé heading German health-care giant Fresenius SE, which runs hospitals, makes medical equipment and supplies drugs and nutritional products. There, he earned a reputation for deal making and cost-cutting, catching the attention of Nestlé's board. Mr. Schneider is the Swiss company's youngest pick for the top job in 50 years and its first outsider CEO since 1922.

Mr. Schneider quickly decided to scrap the so-called "Nestlé model"--the company's long-running target of boosting organic sales by 5% to 6% each year--after it failed to meet it for the fourth year in a row.

Earlier this month, Nestlé said it would look to sell its U.S. confectionery arm, which has lagged Hershey Co., Mars Inc. and Lindt & Spruengli AG.

The two moves were hailed as sensible ones by many analysts. Nestlé critics, including some shareholders, have long said it needs bolder moves.

Last year, before Mr. Schneider took over, Bernstein analyst Andrew Wood warned Nestlé "may suffer a slow slide to mediocrity" after polling 75 of the Swiss giant's investors. They expressed worries about a lack of desire to cut costs, rising competition, frustration about return of capital and mixed views on the company's push into health sciences and skin care. Mr. Wood hailed Mr. Schneider's appointment but wrote he faced "fundamental operating issues" across its business units, and said any turnaround would "likely take years not months."

On Monday, Mr. Wood in a note said "Third Point is just saying (perhaps just louder) what others have been thinking and saying for some time."

Nestlé has previously said it is working to cut costs and sell noncore assets, and is exploring innovative new ways of reaching customers. It recently took a stake in subscription meals service Freshly, and has partnering with street vendors to sell noodles brand Maggi. The company has also been cutting down on the level of salt and sugar in its food and has made a $50 million investment in research and development to turn around its flagging frozen food business.

Consumer goods giants the world over are struggling in an environment of weaker global growth, with volatile currencies, changing consumer tastes. In many places, they face difficulty raising prices in an environment of low inflation. Packaged foods companies are in an even tougher spot. Consumer preferences for healthier, fresher food have forced many to pour money into cutting sugar and salt, without compromising on taste, and to create new brands to pander to new preferences for organic or healthy food.

Competition has mushroomed in the form of delivery companies, subscription-meals services, private label brands and small, local competitors. They are all now competing for consumers who were once predictable grocery-store buyers of Nestlé brands.

Mr. Schneider has said he gets it.

"Size alone does not protect us from the winds of change," Mr. Schneider said at an industry conference in Berlin on Thursday, adding that Nestlé is facing "a constant need to evolve."

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

(END) Dow Jones Newswires

June 26, 2017 08:52 ET (12:52 GMT)