Nestlé Gives Loeb What He Wants: New Margin Targets, Faster Buybacks--Update
September 26 2017 - 2:22AM
Dow Jones News
By Saabira Chaudhuri
LONDON-- 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.
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.
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)
Copyright (c) 2017 Dow Jones & Company, Inc.
Loreal (PK) (USOTC:LRLCY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Loreal (PK) (USOTC:LRLCY)
Historical Stock Chart
From Jul 2023 to Jul 2024