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Bill Ackman’s Letter to Investors, Part II: Pershing’s Top Portfolio Detractors

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Last week, billionaire activist investor Bill Ackman‘s Pershing Square released a letter to shareholders, in which the investor outlined the fund’s performance and provided his take on the outlook of some of the companies that Pershing Square has bet on. In the first part (read here), we mentioned Pershing’s returns, which have been lagging lately and took a look at Ackman’s short position in Herbalife, as well two of its largest holdings: Valeant Pharmaceuticals and Air Products and Chemicals. Let’s take a look at several other companies that Ackman discussed in his letter.

Bill Ackman
Bill Ackman
Pershing Square

Let’s start with Mondelez International Inc (NASDAQ:MDLZ), which represented Pershing’s second-largest detractors, having negatively affected Pershing’s return by 3.5% in the first three months of 2016. With a $1.94 billion position that contained 43.37 million shares, Mondelez represented Pershing’s third-largest stake at the end of 2015. However, in March, Pershing unloaded 20.0 million shares of the company for portfolio management reasons and currently owns 5.7% of the company. Mondelez International Inc (NASDAQ:MDLZ)’s stock has plunged by over 10% during the first quarter, but has rebounded in April and is currently 1% in the red year-to-date. Ackman considers that Mondelez’ 2018 target margins of 17% to 18% will considerably increase the company’s value.

“This target reflects some of the steps the company has taken over the last several years to improve its supply chain, reduce portfolio complexity, and rationalize overhead while increasing advertising and promotion. While we believe that the business is capable of higher margins, if Mondelez were to only achieve management’s target, the business would be worth significantly more than its current public market valuation.”

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Nomad Foods (NYSE:NOMD) is another food company that Ackman mentioned in the letter, highlighting the acquisitions of Iglo and Findus, which transformed Nomad into the largest branded frozen food company. The stock has lost over 31% year-to-date, but the investor considers that the company will continue the consolidation of the packaged food segment over the long-run and will focus on the integration of its latest acquisitions and on achieving synergy targets in the near-term. In the first quarter, Nomad Foods (NYSE:NOMD) had a negative contribution to Pershing’s returns of 0.7%.

“Recent performance has shown weak top-line trends, with like-for-like sales down 5% for 2015, the result of Iglo’s historic strategy which was to disproportionately invest behind new frozen food categories, at the expense of core offerings, in the hope of driving incremental growth. Recently, Nomad has shifted its focus back to its core offerings. This shift will take some time to impact the Company’s financial performance, but ultimately we believe it will result in renewed growth,” Ackman said.

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