Nestle sets formal margin goal

ZURICH: Food giant Nestle on Tuesday set a formal margin target, as several of its rivals have done, fulfilling another demand by activist shareholder Third Point.

“The company will detail how it will reach its mid-single digit organic growth target by 2020, and will announce an underlying trading operating profit margin target of 17.5%-18.5% by 2020,” the Swiss maker of KitKat chocolate bars and Nespresso coffee said ahead of a highly anticipated investor seminar.

The London event is the first time new chief executive Mark Schneider will lay out his strategy for Europe’s largest company.

Investors are looking for proof that Nestle, the world’s largest packaged food company, can improve performance when the sector is battling a slew of upstart brands and changing consumer tastes and habits.

“I guess many investors will be reassured, although the target doesn’t look over ambitious,” Vontobel analyst Jean-Philippe Bertschy said.

Expectations had already been high for Schneider, the first outside CEO at Nestle in nearly a century, but ramped up following the arrival of activist hedge fund Third Point as a shareholder and last week’s death of L’Oreal heiress Liliane Bettencourt.

Third Point, known for driving change at other companies, unveiled a US$3.5 billion Nestle stake in June and asked for a series of actions including a formal margin target.

Nestle said on Tuesday it would ”pursue external growth opportunities that fit within targeted categories and geographies, deliver attractive returns, and build on the companyâ??s leadership positions”.

It confirmed it would focus capital spending on high-growth categories coffee, petcare, infant nutrition, and bottled water and said it also wanted to pursue opportunities in consumer healthcare.

It said that in light of its strong cash generation, it intended to spread evenly over three years its share buyback programme of up to 20 billion Swiss francs (US$20.67 billion) that was announced in June. - Reuters