$NESN (-1,17 %)
Nestlé continued to grow in the first half of 2025 - but high costs are putting some pressure on profitability.
Business in China also weakened. The food giant is sticking to its margin targets for the year as a whole.
Sales for the period from January to June amounted to 44.2 billion Swiss francs - around 1.8 percent less than in the same period last year. This is primarily due to negative currency effects caused by the strong Swiss franc.
Organic growth - i.e. adjusted for currency and portfolio effects - accelerated slightly to 2.9% compared to 2.8% in the first quarter. This growth stems almost exclusively from price increases, for example for Nespresso and Kitkat.
Volume growth (RIG), on the other hand, slumped to 0.2 percent from 0.7 percent in the first quarter. In the second quarter, growth was negative at 0.4 percent. Weak demand in the USA had a negative impact. In North America, Nestlés the most important market with a 35% share of sales, tariffs and uncertainties weighed on consumption.
Operating profit fell by around 7.1 percent to CHF 7.29 billion (previous year: CHF 7.84 billion). The corresponding margin fell from 17.4 percent to 16.5 percent. High raw material prices for coffee and cocoa, increased marketing expenditure and unfavorable currency effects put pressure on margins. Net profit also slumped by 10.3 percent to 5.07 billion Swiss francs.
Nestlé is sticking to its targets for the year as a whole. The figures of the largest food producer partially meet analysts' expectations. It met them in terms of organic growth, but not in terms of volume sold. Nestlé's operating margin exceeded expectations.
Nestlé turns weakening China business and vitamins division upside down
The food giant Nestlé has had enough of the weak growth in China: after growth there really collapsed in the first half of the year, Nestlé wants to restructure the management team. The company is giving itself one year to make improvements.
Growth in Greater China fell by 4.2 percent in the first half of the year. After an increase of 1.7 percent in the first quarter, the situation deteriorated rapidly in the second quarter - which reduced organic Group growth by 0.7 percentage points and volume growth by 0.4 percentage points, as Nestlé announced on Thursday.
Heads are now likely to roll in the management team in China: Nestlé is taking significant steps to improve performance, including changes to senior management, it said. The measures would affect growth for up to a year.
In recent years, Nestlé has grown its business in China by expanding distribution, it added. This model is facing challenges due to weaker consumer demand and the deflationary environment. However, the company remained vague about specific measures in the press release, stating only that it wanted to strengthen its "value proposition". When asked, Nestlé CEO Laurent Freixe said during a conference call with journalists: "We want to penetrate the Chinese market more deeply. We are expanding distribution and want to invest more in the brands." He also expressed confidence in China's long-term potential.
Restructuring in the vitamin business
Nestlé has another construction site in the vitamins business. Laurent Freixe wants to tackle this again, after his predecessor Mark Schneider had already taken it in hand.
Growth in the overarching Nestlé Health Science division had already slowed to 4.2 percent in the first quarter of the year, followed by growth of just 3.4 percent in the first half of the year as a whole. The business with vitamins, minerals and nutritional supplements (VMS) is now to be focused on premium brands such as Garden of Life, Solgar and Pure Encapsulations.
The mainstream brands, on the other hand, will be subject to a strategic review and could therefore be sold. According to CEO Laurent Freixe, this could be reflected in 2026. These include Nature's Bounty, Osteo Bi-Flex, Puritan's Pride and the US private label business.
Despite the setbacks in China and in the vitamins business, Nestlé believes it is on track to turn weakening units around: In the 18 most important underperforming business units, a third of the aggregate growth gap to the market had been closed. These include coffee whitener in the USA, soluble coffee in Europe, frozen pizza in the USA, Milo in Asia and biscuits in Brazil.
Nestlé shares fall sharply after mixed half-year figures
Nestlé shares slump after the presentation of half-year figures. Although the world's largest food company performed better than expected in terms of profitability, it disappointed in terms of the important volume growth (RIG). In addition, growth in China was extremely weak.
Nestlé shares temporarily fell by 3.59 percent to CHF 74.96 on the SIX. Nestlé continues to have a difficult time with investors. After a very weak year, Nestlé shares had a very strong first quarter - but they have since given back a large part of these gains and are up just 4 percent.
Some analysts had seen encouraging signals in the set of figures presented and a positive stock market reaction was still emerging before the close of trading. After all, profitability was significantly better than expected with an operating margin of 16.5%. The corresponding target of at least 16.0% for the year as a whole was also confirmed, which some had doubted in advance.
However, the negative aspects of the figures weighed more heavily on investors' minds in early trading. The robust profitability appears to have been achieved at the expense of volume growth: price increases in particular contributed to growth, while volume development (RIG) slipped into the negative zone in the second quarter. Most investors had expected a positive development here, according to the market. In addition, there were unpleasant surprises in China and at Nestlé Health Science. Nestlé has taken measures to improve in both areas.
In addition, despite confirming the full-year guidance, management is talking about increasing headwinds. Some analysts conclude from this that the margin target, for example, is still on shaky ground.
Vevey (awp)
OWN POSITION
Hold own shares fixed, short puts at 70 and 67 (Sept and Dec). Would very much like to take them over at such prices. Possibly prescribe further shorts at lower strikes. $NESN (-1,17 %) Is indispensable.
