Nestle sets margin goal, to speed up buybacks
Nestle on Tuesday set out its 2020 underlying operating margin target under pressure from activist shareholder Third Point.
Investors are looking for proof that the world’s largest packaged food company under new chief executive Mark Schneider can improve performance as the food sector faces a slew of upstart brands and changing consumer tastes and habits.
The Swiss maker of KitKat chocolate bars and Nespresso coffee said it will explain how it will reach mid-single digit organic growth and an underlying trading operating profit margin of 17.5-18.5% by 2020 at an investor event in London on Tuesday.
“Market pressure for a margin target was huge, with the shadow of Third Point looming. The target does not look impressive, but it sets the trend for the company,” Vontobel analyst Jean-Philippe Bertschy said, adding the 2020 margin would depend on M&A and portfolio management.
Unilever, which this year rebuffed a $143 billion takeover bid from Kraft Heinz, has set a goal of 20% for its underlying operating profit margin by 2020.
Nestle said strong cash generation would allow it to accelerate its share buyback programme of up to 20 billion Swiss francs ($20.67 billion) by spreading it evenly over three years, instead of backloading it in 2019 and 2020 as initially announced in June.
Schneider took over in January as the first outside CEO at Nestle in nearly a century. In June activist hedge fund Third Point unveiled a $3.5 billion Nestle stake and asked for actions, including a formal margin target of 18-20%.
Nestle will “pursue external growth opportunities that fit within targeted categories and geographies, deliver attractive returns, and build on the company’s leadership positions”, the company said on Tuesday.
It confirmed it would focus capital spending on highgrowth categories coffee, petcare, infant nutrition, and bottled water and said it also wanted to pursue opportunities in consumer healthcare.
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