Nestle Shares Plunge Most Since Dot-Com Bust As Weak Volume Shatters High Hopes Of Turnaround

Nestlé shares in Switzerland tumbled the most in 24 years after North American sales volumes unexpectedly contracted, undercutting investor confidence in CEO Philipp Navratil's turnaround efforts.

Organic sales rose a better-than-expected 3.7% in the second quarter, but real internal growth in North America fell 0.6%, while an infant formula recall and the Gulf conflict weighed on operations.

"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.

Ackerman said, "NESN's turnaround is a work in progress, and expectations were too elevated, which explains the steepest fall in the shares since 2020."

If the 7.2% decline holds through the European close, it would mark Nestlé's steepest one-day loss since July 22, 2002, according to Bloomberg data.

Shares peaked around 127 euros in late 2021 and have since fallen 44% into a 4.5-year bear market. Any upside momentum seen this year has stalled - for now - as hopes of a turnaround dim. 

Ackerman added, "Coffee and Petcare remained strong, but were not sufficient to offset weakness elsewhere."

Here's what other institutional desks are saying (courtsey of Bloomberg):

Citi (neutral)

• Cedric Besnard doesn't expect changes to consensus expectations on the back of the print "as the end of the sequential H2 margin acceleration narrative is actually aligned with current expectations"
• "Especially after a relatively strong share price performance recently, we would not expect a re-rating," Besnard writes

Vontobel (buy)

• "Nestle is showing clear execution on the key priorities, marking a meaningful milestone in this new strategic roadmap," Jean-Philippe Bertschy writes
• Adds accelerating RIG, cost savings and improving cash generation are particularly reassuring given higher advertising and marketing spend

Nestlé also agreed to sell half of its Perrier and S.Pellegrino water business to Platinum Equity for 3 billion euros in cash, creating a 50-50 venture valued at 4.9 billion euros. The deal advances Navratil's plan to shed underperforming assets and refocus the company heavily on coffee, pet care, nutrition, food and snacks.

Navratil is pulling every lever to stabilize the sinking ship, and the strategy appears to be working.

As CFO Anna Manz told investors on an earnings call earlier today: "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."