Activist investor Daniel Loeb is keeping up pressure on Nestle by sharing views with the company as part of a regular dialog, a source familiar with the matter told Reuters.
Nestle, Europe's most valuable public company, announced a 20 billion Swiss franc ($21 billion) share buyback program last month coupled with a plan to increase leverage and prioritize acquisitions in high-growth areas as it battles slowing demand for packaged food.
The move came just two days after the billionaire hedge fund manager urged Nestle to more aggressively improve returns as his Third Point fund revealed a $3.5 billion stake that made it Nestle's eighth-largest shareholder.
But Nestle's plan did not address Loeb's calls for it to exit its $26 billion stake in French cosmetics giant L'Oreal or set a formal margin target of 18 to 20 percent by 2020, up from 15.3 percent in 2016. Unilever and Danone have recently set their own respective 2020 margin targets of 20 percent and more than 16 percent.
Some analysts now expect Nestle to set, or at least imply, a long-term margin target at its Sept. 26 investor seminar, when new chief executive Mark Schneider will lay out his plans.
"Third Point's stake may add urgency to margin delivery and sharpens focus on the September investor days," Liberum analysts said.
Loeb's move on Nestle comes months after Unilever fended off a surprise $143 billion takeover approach from Kraft Heinz. Both events highlight the magnitude of the trouble rocking the packaged food sector, as a new generation of consumers flock to smaller brands, leaving companies racing to improve profits through cost cuts.
Nestle has a cost-savings program but has not said how much of this will go toward raising its margins, which are at the low end of its peer group.
Improved productivity was first on Third Point's wish list, and the source, who declined to be identified, said it was the most important.
Loeb, dubbed a "constructivist" for his increasingly cooperative approach, first met Schneider on June 2, the source said, adding that no other meetings are currently planned before the September seminar, which Third Point plans to attend.
Third Point generally agrees with the direction Nestle is heading in under its new CEO, the first outside leader in nearly a century, said the source, but it wants to see greater urgency.
Aside from the share buyback, Schneider, who became CEO in January, has already scrapped a long-term sales model and announced a review of Nestle's U.S. confectionery business.