Rising coffee and cocoa prices erode profits, Nestlé stock price plummets
The stock price hit its biggest one-day drop since 2020. The Swiss food group's revenue fell short of market expectations, and high prices for coffee and cocoa raw materials continued to squeeze the company's profit margins. Shares of the Kit Kat chocolate maker fell nearly 7% on Thursday. Nestlé said operating profit margins in the second half of this year will be roughly the same as in the first half, and it had previously forecast further improvement in profit margins. Investors reacted negatively. Nestlé’s new management is now promoting comprehensive reforms in an attempt to reverse years of weak performance. The new CEO, Philippe Navratil, and Chairman Pablo Isla, who once ran the Indytex Group, have streamlined the group's complex organizational structure and divested some of its business assets. Before the release of the financial report, the market had expected Nestle's second-quarter sales to increase by 2% year-on-year. Driven by this optimism, the stock had previously risen. However, the company's actual sales in the second quarter only increased by 1.8%. Although it was in line with analysts' consensus expectations, it was lower than the optimistic forecasts previously given by some institutions. Barclays analyst Warren Ackerman said: "The stock price has risen in advance, but now this sales data is hardly impressive." Affected by higher coffee and cocoa procurement costs, Nestlé's operating profit margin in the first half of the year dropped slightly by 0.1 percentage points year-on-year to 16.4%; operating profit fell 2.8% year-on-year to 7.1 billion Swiss francs (equivalent to US$8.7 billion). Nestlé said increased marketing investment, various tariff costs, and the global infant formula recall earlier this year also had an impact on operating profit margins. The group had previously been forced to initiate a product recall due to possible contamination of its products with Bacillus cereus toxins; the toxins can cause nausea, vomiting and other uncomfortable symptoms. Bernstein analyst Callum Elliott commented that Nestlé's reduction in profit margin guidance for the second half of 2026 made this financial report lose its brightness. Although profit margin guidance was lowered and sales performance fell short of optimistic estimates, Nestlé's overall revenue in the second quarter was better than market expectations. Benefiting from a 1.9% product price increase, the company's total sales increased by 3.7% year-on-year. Nestlé also announced that it will establish a multi-billion-euro drinking water business joint venture with private equity firm Platinum Equity. This transaction will bring back 3 billion euros in funds for the parent company of the Nespresso coffee machine brand. The new joint venture is named Peranel, with each party holding 50% of the shares, and the overall valuation is 4.9 billion euros. It covers 30 drinking water brands sold in 120 countries around the world, including San Pellegrino, Perrier, Puna, etc.