Nestle Leads Europe's Response to Activists With Higher Profit

(Bloomberg) -- European consumer-goods giants ranging from Nestle SA to Anheuser-Busch InBev NV and Diageo Plc are stepping up their response to activist threats by cutting costs, shedding underperforming brands and returning cash to investors.

Nestle’s sales and profitability are gaining momentum as Chief Executive Officer Mark Schneider revamps the food giant’s portfolio, while brewer AB InBev is streamlining its management and distiller Diageo plans its second big annual share buyback.

The latest moves were welcomed Thursday by Nestle investors, while AB InBev fell as increased marketing spending related to the World Cup weighed on profit growth and Diageo reversed early gains. The moves come as activist investors take aim at the sector, with Dan Loeb’s hedge fund buying a stake in Nestle and rival Unilever pursuing its own revamp after fending off a takeover approach from Kraft Heinz Co.

Nestle Leads Europe's Response to Activists With Higher Profit

Schneider is turning the page after Nestle had its weakest sales growth in more than two decades last year. Facing demands from Loeb’s Third Point, the Nespresso owner said it will complete a strategic review of its Gerber life insurance business by the end of the year, after shedding its U.S. confectionery business and announcing a $7.2 billion deal to market Starbucks-branded coffee beans and capsules.

Sales grew faster than analysts expected in the first six months of the year and the company forecast improvement in the second half as the U.S. and China rebound. The stock rose as much as 2.3 percent in early trading.

‘A Beat’

“Provided Schneider delivers -- and this was a beat -- calls for a different organizational structure and/or a break-up will be stifled,” said Jon Cox, an analyst at Kepler Cheuvreux.

AB InBev shares fell as much as 5.9 percent after the company reported profit growth below analyst expectations. The Leuven, Belgium-based company is trying to become more agile by shifting to six geographic zones from nine. The changes are part of an ongoing effort to integrate SABMiller Plc, which the company acquired in 2016 for more than $100 billion.

“We are now close to two years in the new company following the integration, and we just feel this is the right time to adjust our structure to better reflect the opportunities before us,” Chief Financial Officer Felipe Dutra said on a call with reporters. The reshuffle is primarily a sales-growth exercise but could also help reduce costs, he said.

Shares of rival drinks giant Diageo fell as much as 2.1 percent even though the London-based company announced plans to return 2 billion pounds ($2.6 billion) in cash to investors. That followed a 1.5 billion buyback in the financial year that just ended, for which the company reported sales and earnings slightly above expectations.

The “full-year results confirm that the business continues to be run hard on both costs and top-line,” Jefferies analysts led by Ed Mundy wrote in a note to investors. Diageo is “a business in change.”

©2018 Bloomberg L.P.