Daniel Loeb Comments on Nestlé

Guru stock highlight

Author's Avatar
Feb 22, 2019

We invested in Nestlé (XSWX:NESN) in the Second Quarter of 2017. At the time, we saw a great company that had become complacent after years of success, and an opportunity to help its new CEO Mark Schneider reposition the company for long-term success. We offered a path forward highlighting opportunities to improve financial performance, capital efficiency, and portfolio management, and Nestlé responded by announcing a series of financial targets that incorporated many of our suggestions.

Over the past 18 months, we have been encouraged by the progress the organization has made against those targets. Organic sales growth and operating margins have sequentially improved. More than CHF 11 billion of capital has been returned to shareholders through buybacks, and management has smartly decided to accelerate this program. Management has also begun divesting non-core assets (e.g., U.S. confectionery, Gerber life insurance) and recycling the proceeds into M&A (e.g. Starbucks packaged coffee business). The recently announced decision to explore strategic alternatives for the company’s Herta charcuterie businesses, after announcing a strategic review of its skin health business in September, was another important step forward. We believe 2018 was a pivotal year for Nestlé, one that not only returned the business to robust double-digit EPS growth, but also laid the foundation for similarly strong performance over the next two years and the potential for more than CHF 5.00 of EPS in 2020.

We believe Nestlé can sustain this new momentum beyond 2020, as the company continues to sharpen its strategy, better align its portfolio around key categories, and improve its organization to become more agile. Changing a company as large and complex as Nestlé was always going to take time, but it’s becoming increasingly clear that real change is underway in Vevey. We remain confident in Mr. Schneider’s leadership and the path to create value over time and remain committed to constructively engaging with the Board and management to help Nestlé realize even more of its vast potential.

From Daniel Loeb (Trades, Portfolio)'s fourth-quarter 2018 Third Point shareholder letter.