Nestlé Shares Post Steepest One-Day Drop Since 2002 on Weak North America Volumes

Nestlé shares fell as much as 7.2% in Swiss trading Thursday. If the decline held through the European close, it would mark Nestlé's steepest one-day loss since July 22, 2002, according to Bloomberg data cited by ZeroHedge. The stock briefly traded below 80 francs before settling around 80.55 francs, roughly 6.5% below the prior close, according to Bluewin.

The selloff dragged down Switzerland's entire benchmark index. The SMI fell 1.4% on the day, with Nestlé as the single worst performer on the table, according to Bluewin.

Nestlé reported organic sales growth of 3.7% in the second quarter, beating expectations, according to ZeroHedge. That headline number should have been good news. Real internal growth in North America, the metric that strips out pricing and measures actual volume, fell 0.6%. That's a company shrinking in its most important market, not growing, even as management talks up a turnaround.

Why investors panicked despite a decent headline number

Barclays analyst Warren Ackerman didn't mince words. "Given the rally, we don't think the real internal growth print is quite good enough and expect some profit taking," he said, according to ZeroHedge. Ackerman added that "NESN's turnaround is a work in progress, and expectations were too elevated, which explains the steepest fall in the shares since 2020."

Nestlé stock had been running hot into this report. Shares had made "significant ground" recovering from last year's slump, according to Bluewin, meaning a lot of optimism was already priced in before the numbers came out. When North America volumes came in negative, that optimism evaporated fast.

An infant formula recall and fallout from the Gulf conflict also weighed on operations, according to ZeroHedge, though the North America volume miss was the headline problem.

The margin math UBS doesn't love

UBS pointed out that a pension-related accounting change added 30 basis points to Nestlé's operating margin this quarter, according to Bluewin. Strip that one-time boost out, and the margin actually fell 40 basis points.

Nestlé's turnaround pitch under CEO Philipp Navratil rests on proving the company can grow and control costs at the same time. A margin improvement that's mostly an accounting artifact isn't the same as real operational discipline.

Management also walked back margin guidance for the back half of the year. Rather than exceeding first-half levels, the margin is now expected to hold roughly flat, according to Bluewin. Zürcher Kantonalbank (ZKB) said that guidance "could disappoint short-term-oriented shareholders."

Not everyone's bearish

Several analysts pushed back on the doom framing. Vontobel's Jean-Philippe Bertschy called the results "clear execution on the key priorities, marking a meaningful milestone in this new strategic roadmap," according to ZeroHedge, pointing to accelerating growth, cost savings and improving cash generation as reassuring signs, especially given higher marketing spend.

Baader also flagged what it called a "remarkable" quarter-over-quarter volume trend as a positive, according to Bluewin. Citi's Cedric Besnard was more neutral, saying he doesn't expect the print to change consensus estimates since "the end of the sequential H2 margin acceleration narrative is actually aligned with current expectations," according to ZeroHedge.

Coffee and Petcare remained bright spots, with Ackerman noting those categories "remained strong, but were not sufficient to offset weakness elsewhere," according to ZeroHedge.

The Perrier deal nobody's arguing about

Nestlé 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 joint venture valued at 4.9 billion euros, according to ZeroHedge. Bluewin put the proceeds at roughly 2.8 billion Swiss francs, in line with what analysts had already expected, alongside announced write-downs totaling 1.3 billion francs.

Analysts on both sides welcomed the deal as ending a long wait for clarity on Nestlé's water business, according to Bluewin. It advances Navratil's broader plan to shed underperforming assets and focus capital on stronger categories like coffee and pet care.

What's unresolved

Nestlé shares peaked around 127 euros in late 2021 and have since fallen 44% into what ZeroHedge describes as a 4.5-year bear market. Thursday's drop wiped out much of the stock's recent recovery.

Whether North America's volume weakness is a temporary stumble tied to the formula recall and one-off disruptions or a sign that American consumers are pulling back on Nestlé's higher-priced products more broadly remains unclear. The next quarterly report will be the real test of whether Navratil's turnaround has legs or whether Thursday's selloff was the market finally seeing through an accounting-assisted margin story.