Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Ulf Mark Schneider, the new chief executive of Nestle SA, has said he wants to steer a steady course between companies that chase profits at the expense of growth, and revenue-focused food start-ups.

But sometimes the middle can be an uncomfortable place to be.

On Tuesday, at an investor day in London, Schneider bowed to pressure to announce a firm margin target for the first time in the company's history. He is aiming for an underlying operating margin -- stripping out restructuring costs and one-time items -- of 17.5 percent to 18.5 percent by 2020. That's ahead of the 16 percent achieved in 2016.

Some Way to Go
Nestle has scope to lift its underlying margins
Source: Bloomberg Intelligence
P&G is year to June 30 2017

But it falls short of the 18-20 percent target demanded by activist investor Dan Loeb.

It's never a good idea to announce both a firm margin and sales target -- there's double scope to miss -- but Schneider's stuck with his previous aim of mid-single digit organic expansion in sales by 2020. He plans to get there by focusing on the faster-growing categories of coffee, pet care, infant nutrition and bottled water, supplemented by consumer healthcare.

Growth Wanted
Nestle, in common with rival consumer groups, is struggling to eke out sales expansion
Source: Bloomberg Intelligence

Nestle will also accelerate its $21 billion share buyback plan: it will now be spread evenly over three years. The company had previously said it would be weighted towards the end of the period.

If Schneider wanted a big splash, he didn't get it. He'd done himself no favors by having already announced the buyback and a strategic review of the company's U.S. confectionery business.

Both would have created excitement had they been revealed during the investor day. Instead, Tuesday's developments look incremental at best.

He has also said there is no change regarding Nestle's 23 percent stake in L'Oreal. Loeb, and some other investors, want him to dispose of the stake. As Gadfly has argued, with the recent death of Liliane Bettencourt, he has a pretext to explore this, without looking as if he has caved into activist demands. With a lot on his plate with developments in other parts of the company, he wants, rightly, to concentrate on these first. So there might be scope for change in time. If so, that would please investors. 

The shares have run up about 22 percent since the start of December on expectations that Schneider's appointment will usher in change at Nestle. They had hardly moved on Tuesday, and trade on a forward price earnings ratio of just under 22, ahead of Unilever's just over 20 times.

Hope Factor
Nestle's valuation has moved ahead of Unilver's on expectations of change
Source: Bloomberg

Schneider's approach is eminently sensible. But it's made up of many incremental changes, rather than the big bang one might expect given the rumblings of an activist investor. Having underpromised, though, he's allowed himself plenty of room to overdeliver.

Given the expectations baked into the share price, global consumer goods companies' struggles to eke out growth and Loeb's lurking presence, he really needs to.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net