Nestle (NSRGY), the Swiss company behind Nespresso capsules and KitKat candy bars, reported weaker North American volumes, raising fresh concerns about the pace of its turnaround under Chief Executive Officer Philipp Navratil. The company's shares fell as much as 7.3% on Thursday, marking their largest decline since 2020 and wiping out most of this year's gains. Nestle reported second-quarter organic sales growth of 3.7%, slightly above estimates, while companywide real internal growth reached 1.8%. However, real internal growth in North America fell to negative 0.6%, suggesting the sales-volume recovery has yet to gain consistent traction in one of the company's key regions. Analyst Warren Ackerman said the volume result may not be strong enough following the stock's recent rally and could lead some investors to take profits.
Navratil, who became chief executive last September, is under pressure to restore sustainable volume growth while reducing costs and moving underperforming operations out of the portfolio. Nestle's nutrition division recorded lower organic growth during the first half after an infant formula recall covering more than 60 countries reduced sales by approximately 0.9 percentage point in the first quarter and 0.3 percentage point in the second quarter. The company expects to regain market share by the end of the year. Nestle is also managing disruption from the war in the Middle East, with Chief Financial Officer Anna Manz saying the largest impact is being felt across Asia, Oceania and Africa. Despite these pressures, management maintained its margin guidance, which may provide some reassurance as investors assess whether the company can protect profitability while rebuilding volumes.
Nestle also agreed to sell half of its water business, including the Perrier and S.Pellegrino brands, to Platinum Equity, a California-based private equity firm backed by billionaire Tom Gores, for 3 billion, or about $3.4 billion, in cash. The transaction will establish a 50-50 joint venture called Peranel with an enterprise value of 4.9 billion. Navratil said the sale will help simplify Nestle's portfolio and sharpen its focus on coffee, pet care, nutrition, food and snacks. The move follows the announced sale of the Blue Bottle Coffee chain in April, while Nestle is also seeking buyers for its struggling vitamin unit and remaining ice cream business. Investors may view the disposals as meaningful progress in the restructuring plan, although the sharp share-price reaction suggests that stronger and more consistent volume growth remains central to rebuilding confidence in the turnaround.