Nestlé recovery strategy overview
- Nestlé organic growth reaches 3.6% as volumes strengthened significantly
- Real internal growth (RIG) up 1.5% from 0.2%
- Net profit down 31.4% due to restructuring and write-downs
- Higher marketing spending supports brands and accelerated growth momentum
- Commodity pressures remain, but Nestlé expects continued growth acceleration
Nestlé’s H1 2026 financial results mark a shift in fortunes for the world’s biggest CPG.
After years of slowing volumes, inflationary pressures and a falling share price weighing on performance, Nestlé’s latest results offer early signs that its recovery strategy, under new CEO Philipp Navratil, is starting to gain traction.
Nestlé’s recovery strategy
Nestlé’s organic growth increased 3.6% from 2.9% year-on-year in H1 2026, while real internal growth grew 1.5% from 0.2%.
This improvement, says Diana Radu, equity analyst at Morningstar, indicates that Nestlé’s move towards volume-led growth is gathering momentum.
The results are particularly significant given investor concerns that Nestlé had become overly reliant on price increases to drive growth.
But the figures weren’t all positive, as net profit fell significantly – CHF3.5bn from CHF5.1bn in H1 2025. That’s a decline of 31.4% in a single year and a “big surprise” according to Radu.
This was driven by “higher restructuring costs and asset write-downs,” she explains.
Despite this, the underlying trading operating profit margin remained relatively resilient at 16.4%, down just 10 basis points year-on-year.
And the consensus is that overall the numbers are looking good, with Radu describing them as “a positive signal”.
Though the ultimate test, says Radu, will be whether Nestlé can sustain this momentum and consistently deliver against its midterm target of 2% RIG.
One of the key drivers behind that momentum has been investment in brand building.
Marketing success
Nestlé’s advertising and marketing budget rose to 8.9% of sales in the first half of the year, as the business focused on strengthening brand awareness and consumer engagement.
And the strategy has already had some success with the 'KitKat heist' campaign winning nine Cannes Lions awards.
Having said that, Radu warns that when it comes to the accelerating RIG, “it’s hard to fully disentangle marketing ROI from other tailwinds, including easier comparisons in China and the normalisation of recall-related disruptions”.
As a result, she suggests one or two more quarters of RIG acceleration would “make the case more convincing”.
And sustaining progress will not be straightforward, with ongoing cost pressures continuing to weigh on key commodity markets.
Cost challenges
The food and beverage industry is facing considerable challenges when it comes to production costs. In particular, volatility in commodities such as cocoa has put significant strain on manufacturers, with some coping better than others.
Nestlé, says Radu, is navigating this environment “quite well”. The maker of major brands including KitKat, Nespresso and Shreddies has initiated price-pack architecture and staggered pricing to offset input costs.
“Higher coffee and cocoa costs pressured first half margins, but recovery should strengthen in the second half as these costs ease and cost savings continue to flow through,” she explains.
The major also has a portfolio advantage over many of its competitors, with less commodity-intensive formats such as wafer-based chocolate products and soluble blends for coffee helping protect its gross margins. By relying less heavily on cocoa and coffee than some rivals, it’s better positioned to absorb periods of input cost inflation without putting the same level of pressure on pricing or profitability.
Confectionery volume pressure
“Confectionery performed well through 2025 and into the first quarter of 2026,” says Radu. “But it’s now seeing some volume pressures, as higher prices weigh on demand, particularly in Europe.”
The company indicated that confectionery and coffee were affected by some retailer de-listings in Europe in the second quarter following pricing discussions. But this, says Radu, is likely to be temporary and is common in categories that face pronounced input cost inflation.
What’s more, this is another area where the multinational enjoys portfolio advantage, as it’s not solely reliant on traditional chocolate bars. “Its growing focus on ‘chocobakery’ products, which combine chocolate with biscuits and wafers, helps reduce its exposure to cocoa costs,” she explains.
Nestlé’s future
The industry leader is confident its progress will continue into the second half of the year, maintaining its expectation of 3% to 4% organic growth, with real internal growth set to accelerate as the company rolls out its targeted growth plans.
It also expects underlying trading operating profit margins to improve, though it anticipates second-half margins will be in line with those achieved in the first half.
Meanwhile, free cash flow is forecast to exceed CHF9bn for the full year, underlining Nestlé’s focus on strengthening cash generation while continuing to invest in brand-building and innovation.
“While the external environment remains uncertain, we are taking actions to accelerate consistent growth,” says Navratil.
And analysts support this positive outlook, with Radu describing it as “achievable”.
“Since the investment in marketing and promotion will remain elevated in the second half compared to past years, this should put the company in a good position to achieve the 3%-4% organic growth guidance,” she says.
Radu also believes the margin target is deliverable. “Last year’s second-half margin was depressed at 15.7%, while Nestlé expects the second-half 2026 margin to be broadly in line with the first half’s 16.4%. This creates a relatively easy comparison and should support year-on-year margin improvement.”
So, while challenges remain, particularly around commodity volatility and consumer demand, the results suggest the food and beverage giant is increasingly well positioned to sustain volume-led growth and deliver on its recovery ambitions.
