Nestlé’s Half‑Baked Turnaround: Profit Slump and Market Dynamics

Nestlé’s first‑half results send mixed signals – growth picks up while profit collapses, rattling investors.

Partial Victory: Organic Growth Gains Momentum

■Organic growth rose to 3.6% (up from 2.9% a year earlier).

■Real internal growth, i.e., volume‑led growth, climbed to 1.5% (versus 0.2% previously).

■Coffee sales surged 7.5%, driven by Nescafé.

The Profit Shock Explained

■Net profit fell to CHF 3.5 billion, a 31.4% decline from CHF 5.1 billion.

■Underlying operating margin slipped to 16.4%.

■Higher coffee and cocoa prices, increased marketing spend, new tariffs and a recall of infant formula weighed on earnings.

Brand Performance and Regional Dynamics

■Food & Snacks grew 3.7%, with Maggi, KitKat and Milo leading.

■Pet care expanded 2.7%.

■Emerging markets (excluding China) posted 7.1% growth; China stabilized after prior inventory reductions.

Strategic Moves: Portfolio Reshaping

■A 50/50 joint venture for water and premium beverages aims to generate CHF 2.8 billion net cash proceeds by 2027.

■The mainstream vitamins, minerals and supplements business and the ice‑cream division are now classified as assets held for sale.

Defne Aydın – Nestlé’s turnaround hinges on volume recovery, yet margin erosion from raw‑material costs and tariffs casts doubt on second‑half profitability. With ECB policy rates remaining elevated and euro‑area inflation pressures persisting, input‑cost inflation could further constrain pricing power. Investors should weigh the cash generated from asset disposals and joint‑venture proceeds as a buffer for sustaining growth.