Nestle counts on better second half to keep Third Point at bay

ZURICH (Reuters) - Nestle NESN.S Chief Executive Mark Schneider said he was convinced the food giant had the right strategy in place to further improve sales and profitability as it seeks to head off criticism from activist shareholder Third Point.

FILE PHOTO: The Nestle logo is seen during the opening of the 151st Annual General Meeting of Nestle in Lausanne, Switzerland April 12, 2018. REUTERS/Pierre Albouy/File Photo

Packaged food groups have seen sales slow as health-conscious consumers switch to fresh, local foods and Nestle is reviewing its portfolio to get rid of underperforming brands while also launching more new products to address these challenges.

The KitKat chocolate bar maker has come under pressure from New York-based hedge fund Third Point, run by investor Daniel Loeb, asking for a bolder and faster overhaul at the world’s biggest food group.

Without mentioning Third Point, Schneider defended the company’s efforts to improve margins without sacrificing growth during an investor call on Thursday on Nestle’s results for the first half of 2018.

“The year-to-date results show some of our progress, we are pleased, but not satisfied. We are far from done, there’s a lot more to come,” Schneider said after Nestle posted better-than-expected organic sales growth of 2.6 percent in the second quarter..

He said Nestle’s management team was moving fast, “at a pace consistent with the significant shifts in our food and beverage market environment”, but that the logic and direction of the strategy needed time to become fully visible.

He also defended the expertise of Nestle’s board members, a bone of contention for Third Point, who said they lacked food industry experience.

Schneider also dismissed media speculation his predecessor and current Nestle Chairman Paul Bulcke was not fully supporting him by stressing their strong working relationship and full agreement on the scope and pace of change.

Contacted by Reuters, Third Point declined to comment on Nestle’s half-year results.


Nestle’s improved performance in the second quarter was driven by a recovery in the sluggish U.S. market and in China as well as in infant nutrition.

Schneider said efficiency programs and more favorable commodity pricing would help to further improve margins in the second half and he also expected growth to accelerate further.

Nestle narrowed its guidance for 2018 organic growth to “around 3 percent” from 2-4 percent.

Shares in the group behind Nescafe instant coffee were up 2 percent at 1445 GMT, leading a slightly negative European sector index .SX3P.

“Nestle’s improving measures are starting to kick in and materialize in both growth and returns development,” Vontobel analyst Jean-Philippe Bertschy said, adding that new products had helped accelerate growth in infant nutrition and petcare.

Kepler Cheuvreux analyst Jon Cox pointed to better-than-expected underlying earnings per share and strong cash flow.

Nestle’s sales by volume rose by 2.4 percent in the second quarter, but prices rose by just 0.2 percent as retail partners, under pressure from discounters and online rivals, fight to keep costs down.

The trading operating margin before restructuring costs rose to 16.1 percent in the first half, as operational efficiencies offset higher commodity, packaging and distribution costs.

The company has set a 2020 target of 17.5-18.5 percent target which Third Point has criticized as less ambitious than peer Unilever.

Unilever ULVR.LUNc.AS posted disappointing quarterly sales growth of 1.9 percent last week, but said it expected growth to accelerate in the second half due to price rises.

Nestle’s net profit increased by 19 percent to 5.8 billion Swiss francs and earnings per share jumped by a fifth, helped by a one-off gain linked to the sale of its U.S. confectionery business.

Editing by Jason Neely and Keith Weir