Nestlé NESN
Nestlé's world-class brand portfolio masks decade-long underperformance; new CEO Schneider must adopt margin and leverage targets, reshape the portfolio, and monetize L'Oréal to drive EPS to CHF 5-6 by 2020.
Thesis
Third Point owns ~40 million Nestlé shares (over $3.5bn including options) and argues that despite owning arguably the best portfolio in CPG — 34 billion-CHF brands across coffee, infant formula, pet food and water — Nestlé has trailed peers on TSR for ten years and produced no EPS growth in five. New CEO Ulf Mark Schneider, advised informally by packaged-goods veteran Jan Bennink, must commit to a bold four-pillar plan: a formal 18-20% EBIT margin target by 2020 (vs 15.3% today), a 2.0x leverage target funding aggressive buybacks, divestiture of non-core brands like US confectionery, and full monetization of the 23% L'Oréal stake worth ~$25bn. Executed together, these moves would lift EPS from CHF 3.40 to CHF 5.00-6.00 by 2020 and earn a premium multiple to staples peers.
SCQA
Nestlé is the world's largest food company at over $250bn market cap, with 34 brands above CHF 1bn in sales, leadership in coffee, pet food, infant formula and water, and strong emerging-market exposure.
Despite that portfolio, Nestlé has trailed peers on 3/5/10-year TSR, EPS has been flat for five years, EBIT margin (15.3%) sits at the bottom of the peer set, and the balance sheet is dramatically under-leveraged.
New CEO Schneider should adopt a formal 18-20% margin target by 2020, a 2.0x leverage target funding buybacks, divest non-core brands (US confectionery), and fully monetize the 23% L'Oréal stake.
Together these moves re-accelerate organic growth to mid-single digits and lift EPS from CHF 3.40 to CHF 5.00-6.00 by 2020 — a >50% earnings uplift commanding a premium multiple to staples peers.
The three reasons
- 1
World's best CPG portfolio yet trails peers on 3/5/10-year TSR with flat EPS for five years
- 2
EBIT margin 15.3% is bottom of peer set; ~400bps of upside achievable by 2020
- 3
Underlevered balance sheet plus a $25bn L'Oréal stake can fund massive buybacks
Primary demands
- Adopt a formal EBIT margin target of 18-20% by 2020
- Set a leverage target of at least 2.0x net debt/EBITDA and use capacity for share buybacks
- Conduct a comprehensive portfolio review and divest non-core businesses (e.g. US confectionery)
- Monetize the 23% L'Oréal stake, potentially via an exchange offer for Nestlé shares
- Pursue accretive bolt-on M&A in high-growth, advantaged categories
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- Baxter International (Third Point's 2015 investment)
- Jan Bennink turnaround at Royal Numico (sold to Danone)
- Sara Lee separation into Hillshire Brands and DE Master Blenders 1753
- Ulf Mark Schneider's tenure at Fresenius (~20% CAGR)
Notable slides (4)
Notes
Investor letter announcing Third Point's then-largest-ever position (~$3.5bn, ~40M shares; implied ~1.3% stake but no explicit percentage disclosed). Notably collaborative/constructive tone toward newly appointed CEO Ulf Mark Schneider — explicitly endorses him while urging bolder action against legacy 'incrementalism'. Highlights advisor Jan Bennink (ex-Numico, Sara Lee, DE Master Blenders) as credibility booster. Four-pillar playbook (margins, leverage/buybacks, portfolio reshape, L'Oréal monetization) is the canonical CPG conglomerate-activist template. Closing line riffs on Nestlé's slogan: 'Nestlé makes the very best returns for its shareholders.' Two key visual exhibits: TSR peer-gap (p.2) and operating margin peer-gap (p.5) — simple but effective.