Nestlé Stock Falls 6% on H1 2026 Earnings Miss, Water Sale Announced

Nestlé shares fell 6.24% to 79.93 CHF on Thursday after reporting half-year results that missed profit expectations. Net profit plunged 31% to CHF 3.5 billion, driven by restructuring costs and a CHF 1.3 billion write-down on assets held for sale. The Swiss food giant blamed higher coffee and cocoa prices, US tariffs, and a baby food recall for the weakness. The company announced it will spin off its water business, retaining 50% while selling the other half to a private equity partner.

Why profits fell 31% in the first half

Nestlé’s net profit dropped to CHF 3.5 billion from CHF 5.1 billion a year earlier. Restructuring costs and a CHF 1.3 billion write-down on water business assets held for sale accounted for most of the decline. Rising coffee and cocoa prices squeezed margins, while US tariffs and the baby food recall also hurt results. Real internal growth, the key volume metric, reached only 1.5%, below the 3.6% organic growth figure that included price increases.

Water business spin-off targets higher margins

Nestlé will transfer its water division, including brands San Pellegrino, Perrier, Vittel, Henniez, and Nestlé Pure Life, into a new company. Nestlé will own 50% and a private equity firm the other half. The transaction values the water business at approximately EUR 2.8 billion. The move lets Nestlé focus on higher-margin categories like coffee, pet food, and snacks. Analysts praised the cost controls and the partial water sale, though they noted the lack of positive surprises.

Volume growth accelerates but margins weaken

Real internal growth improved to 1.8% in the second quarter, the strongest in eight quarters, as price increases faded and volume gains took over. However, operating margins face headwinds. A pension plan adjustment added 30 basis points to the first-half margin; without it, margins would have fallen 40 basis points. Management now expects second-half margins to stay flat versus the first half, not improve as investors had hoped. This cautious outlook disappointed short-term investors, according to analysts at Zurich Cantonal Bank.

CEO Navratil confirms turnaround on track

Chief Executive Philipp Navratil has now delivered organic growth in line with market expectations for four consecutive quarters since taking the helm. Volume gains accelerated despite North America showing weakness, a concern that sent shares tumbling. The company reaffirmed its full-year outlook, signaling confidence in the turnaround plan even as near-term profit margins remain under pressure.

Final Thoughts

Nestlé faces a margin squeeze despite progress on volume growth and cost control. With the stock down 6% and margins expected to stay flat in H2, investors should monitor whether the water spin-off and margin recovery plans can restore profitability by year-end.

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