Nestle Sells Water Unit Stake as Volume Growth Disappoints
(Bloomberg) — Nestle SA is selling half of its water business for €3 billion ($3.4 billion) in cash as the Swiss food company’s volume growth disappointed investors in the first half.
The shares fell as much as 7.3% on Thursday morning, the worst drop since 2020, after real internal growth, a key metric of volumes, came in at 1.5% in the period. That was a setback for shareholders betting on a turnaround under Chief Executive Officer Philipp Navratil.
“Given the rally, we don’t think the RIG print is quite good enough and expect some profit taking,” Barclays analyst Warren Ackerman said in a note.
The maker of Nespresso capsules and KitKat candy bars is selling the stake in the water unit, which houses brands including Perrier and S.Pellegrino, to private equity firm Platinum Equity. The deal will create a 50-50 joint venture called Peranel with an enterprise value of €4.9 billion, they said in a statement.
Less than a year into his tenure, Navratil is under pressure to show Nestle can sustainably boost sales volumes, while simultaneously slashing costs and shedding underperforming businesses.
Nescafe Leads
The coffee business recorded organic sales growth of 7.5% in the period, led by Nescafe, while growth in food and snacks was driven by brands including Maggi and KitKat.
Nestle is selling the water stake as part of a turnaround plan that’s aimed at refocusing on core brands. The company in April announced the sale of its Blue Bottle Coffee chain, and is also looking to sell its struggling vitamin unit and its remaining ice cream business.
Nestle’s water operations have been troubled in recent years, hurt by tepid consumer demand and investigations and lawsuits related to the use of filtration and treatment methods on some bottled water products.
Navratil said the water sale helps the company streamline its portfolio to focus on coffee, pet care, nutrition and food and snacks. “At the same time, we are creating a dedicated global leader for the waters business.”
Platinum, the California-based private equity firm backed by billionaire Tom Gores, outlasted other suitors in pursuing the business, confirming a Bloomberg report.
Formula Impact
Navratil took over last September after his predecessor was ousted over an undisclosed romantic relationship with a subordinate. Nestle’s new chairman Pablo Isla took over on Oct. 1.
The new leadership team has to prove it can revive growth while rebuilding trust after the governance crisis. Only months into their tenure they had to pull infant formula from shelves in more than 60 countries after finding a toxin in some products.
The nutrition unit posted a decline in organic growth in the first half as the formula recall reduced sales by about 0.9 percentage point in the first quarter and 0.3 percentage point in the second, Nestle said. The company expects to regain market share by the end of the year.
Nestle said the business in greater China has stabilized, a year after the company took steps to reduce trade inventories and revamp its operating model there.
As for the war in the Middle East, the company is seeing the biggest impact in the Asia, Oceania, and Africa regions, Anna Manz, chief financial officer, said on a call with reporters. Nestle is using all the “levers” it has, “you see us manage, as we have in the first half, any elements that come our way quite consistently, and that’s why we’re maintaining our margin guidance today,” Manz said.
–With assistance from Lisa Pham.
(Updates with shares, analyst reaction)
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