Nestle has increased sales above forecast. Why does it want to sell some of its brands?

Nestle's organic sales in the first half of 2025 exceeded forecasts, but growth was mainly driven by price increases. The new management of the world's largest food manufacturer is trying to revitalize the company's business by betting on premium brands and getting rid of assets that have not lived up to expectations. As part of this strategy, Nestle may put up for sale part of the business bought just four years ago.

In the first half of 2025, Nestle's organic sales - excluding currency fluctuations and M&A - increased by 2.9%, slightly better than analysts' expectations (2.8%). The growth was achieved largely due to price increases of 2.7% - against a forecast of 2.5% - while physical sales volumes rose just 0.2%, against expectations of 0.4%, and slipped in the second quarter. Total revenue fell 1.8% to 44.2 billion Swiss francs ($55.8 billion), while analysts were expecting 44.6 billion francs. The maker of Nescafe and KitKat attributed this to the negative effect of the strengthening Swiss currency, передает Reuters. 

Nestle's new chief executive Laurent Freixet, who took over a year ago with the aim of boosting sales and shareholder value, has launched a strategic review of Nestle's vitamins and supplements business. Mass and budget segment brands including Nature's Bounty, Osteo Bi-Flex and Puritan's Pride have come under the review and could be sold. Nestle acquired them at the initiative of previous chief executive Mark Schneider for $5.75 billion in 2021, but has run into problems integrating them into its own supply chains, the Financial Times recalls. Freische told analysts that these brands were acquired for scale, but over time it became clear: the opportunities for growth lay in the premium segment, describes Bloomberg. Nestle is now looking to focus on growing its more profitable premium brands Garden of Life and Solgar. 

Vontobel analyst Jean-Philippe Bershi welcomed Nestle's overhaul of its portfolio of vitamin brands, but noted that the company "should have started it earlier." Nestle was probably counting on a quick transformation of poorly performing products that ended up becoming a burden, Bershey suggested. Speaking to the FT, he valued those assets at "a few hundred million".

Analysts at Jefferies drew attention to "investor disappointment in sales volumes" and the "fragility" of Nestle's commitment to hold margins in the second half of the year. These factors will add to the pressure on the stock, they said. Although the company reaffirmed its outlook for 2025, including an expected profitability of at least 16%, the market reacted negatively to the report, with Nestle shares falling more than 5% in Zurich trading. Over the past month, they have fallen by 10%.

Bank of America in early July maintained a "buy" recommendation on Nestle (Buy) and raised its target price from 97 to 100 francs. The bank then called the market's expectations for the company's 2026 earnings "undemanding," and called the recent weakening of the stock an attractive buying opportunity, reported MarketScreener. BofA predicts profitability in Nestle's key coffee business will bottom out in 2025, after which it will start to grow.

Nestle's steps to review its asset portfolio fit into the general trend in the European consumer goods market. Many industry giants are getting rid of troubled or non-core divisions to focus on segments where sustainable profit growth is possible. Reckitt Benckiser Group, for example, sold most of its household chemicals business in July, while Unilever is separating its £15 billion ($20.4 billion) ice cream division, reported Bloomberg.

Nestle, like its competitors, faces a balancing act between raising prices to offset the rising cost of its raw materials - cocoa and coffee - and the risk of scaring off thrifty customers. Company executives stated that most of the price increases were realized in the first half of the year and commodity inflation appears to have already peaked.

This article was AI-translated and verified by a human editor