Dan Loeb was right. Nestle needs an overhaul

Inside Columbia's lab trying to cook food in 3D printers
Inside Columbia's lab trying to cook food in 3D printers

Life ain't so sweet for Nestle.

The company behind Haagen-Dazs and Nescafe revealed Thursday that its existing businesses grew by just 2.4% in 2017, the slowest pace in over two decades.

The weak performance is likely to fuel demands from investors that the company slim down, focus on its most profitable operations and accelerate its move into organic, natural brands.

Dan Loeb, who runs the activist fund Third Point, has been agitating for such an overhaul since he bought a $3.5 billion stake in Nestle (NSRGF) in 2017 and became its fifth largest shareholder.

Loeb argues that his strategy would help Nestle improve its sales and profitability. He wants the company, for example, to sell its 23% stake in cosmetics firm L'Oreal and ditch some of its 2,000 brands.

And he wants it to happen fast.

Nestle has made moves to address investor concerns, announcing the sale of more than 20 of its U.S. candy brands in January. It's also trying to react to changing consumer preferences, which are shifting toward niche, healthy foods.

"We're trying to be sure that we're in sync with our shareholders," CEO Mark Schneider said on Thursday. "There's a broad consensus among investors that we're going in the right direction and that we're going at a pace that is commensurate with the size company."

Related: Nestle selling U.S. candy brands to Nutella company

But not everyone is happy. Shares in Nestle are down 13% since December, and analysts argue the company could move more quickly to offload weaker brands.

"They haven't moved quick in the past, and they're not moving quickly now," said Robert Waldschmidt, an analyst at Liberum. "This kind of portfolio change takes time."

Third Point did not respond to requests for comment.

Waldschmidt said that Loeb was likely to continue pressing for rapid change.

"Nothing that was said today would demonstrate that he's going to be satisfied anytime soon," said Waldschmidt.

L'Oreal (LRLCY), the French cosmetics maker, could prove to be a major sticking point.

Nestle said on Thursday it would not be increasing its stake in L'Oreal, saying it remained "committed to the company that has given us very good returns over the years."

Waldschmidt said that Loeb may eventually get his way.

"In the very long term, they're definitely going to exit this stake but it may not be in the time period that Third Point would like," he said.

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