Nestle’s Volume Growth Disappoints, Sending Shares Plunging
(Bloomberg) — Nestle SA reported weaker volumes in North America, disappointing shareholders betting on a turnaround under Chief Executive Officer Philipp Navratil and sending shares tumbling.
The stock fell as much as 7.3% Thursday, the worst drop since 2020, after the Swiss company reported that real internal growth, a key metric of sales volumes, turned negative in North America last quarter. The share drop erased most of this year’s gains.
“Given the rally, we don’t think the real internal growth print is quite good enough and expect some profit taking,” Barclays analyst Warren Ackerman said in a note.
Less than a year into his tenure, Navratil is under pressure to show the maker of Nespresso capsules and KitKat candy bars can sustainably boost volumes, while slashing costs and shedding underperforming businesses.
Nestle on Thursday announced the sale of half of its water business, with brands including Perrier and S.Pellegrino, to Platinum Equity for €3 billion ($3.4 billion) in cash. The deal will create a 50-50 joint venture called Peranel with an enterprise value of €4.9 billion, they said.
Troubled Waters
The sale is 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.
Platinum, the California-based private equity firm backed by billionaire Tom Gores, outlasted other suitors in pursuing the business. Bloomberg News reported in June that Platinum was the last remaining bidder for the water asset after private equity rival Clayton Dubilier & Rice dropped out of the race.
Formula Impact
Navratil took over last September after his predecessor was ousted over an undisclosed romantic relationship with a subordinate. Only months into his tenure, he faced the dual challenges of an infant formula recall in more than 60 countries and the outbreak of war in the Middle East.
Organic sales rose 3.7% in the second quarter, slightly better than estimates. Nestle delivered real internal growth of 1.8% overall, but the figure in North America dropped to -0.6%.
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.
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 North America RIG in second paragraph)
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