Nestlé's RIG-led comeback: Execution improving, but pet destocking and recall still weigh
H1 2026 results show accelerating Real Internal Growth, a strategic Waters partnership, and cost savings ahead of plan, but margin is flat and investors await consistent delivery.
NESN.SW · Earnings Call · 2026-07-23
Growth: RIG-led, but with lumps
Nestlé’s first-half 2026 results show momentum building, though not without temporary speed bumps. Organic sales growth came in at 3.6%, with real internal growth (RIG) strengthening from 1.2% in Q1 to 1.8% in Q2 — the fourth consecutive quarter of expansion. CFO Anna Manz put it plainly: “RIG accelerated from 1.2% in Q1 to 1.8% in Q2, and this is now 4 quarters of good growth.” — Anna Olive Manz, Chief Financial Officer · 2026-07-23 The acceleration is broad-based, driven by emerging markets, a stabilizing China, and an ongoing recovery from the infant-formula recall.
However, two one-off items trimmed the quarter: U.S. pet-care inventory destocking and European delistings. On pet care, Manz explained in the Q&A:
So on Pet Care, we feel good about the medium-term expectations of the category. And actually, you see really good RIG-led momentum in Europe, growing at mid-single digits. You see the emerging markets growing really nicely. So what's held pet care back in the half and specifically the quarter is the performance in the U.S., which, as I talked through, is really a function of retailer inventory reductions because you see that strong and improving sell-out data.
She characterized the destocking as “one-off in nature,” noting that the underlying sell-out data shows acceleration. European delistings were also framed as temporary and normal course, though they did weigh on the quarter. Pet care remains a large profit pool, and its recovery is key to meeting the mid-single-digit goal.
Portfolio and strategic sharpening
The most notable strategic action was the announcement of a partnership for Nestlé Waters and Premium Beverages, allowing Nestlé to focus on its four large categories — Coffee, PetCare, Nutrition, and Food & Snacks. CEO Philipp Navratil framed it as “focusing to win”: “The partnership for Waters is an important step here. This is about focusing to win.” — Philipp Navratil, Chief Executive Officer · 2026-07-23 This is an explicit endorsement of the growth platform approach, where incremental investment, funded by the Fuel for Growth cost savings, is directed toward high-opportunity areas. Marketing spend rose to 8.9% of sales, up 30 basis points, with a sharper emphasis on digital and influencer channels.
The infant formula business, hurt by last year’s recall, is recovering. In Q2, infant nutrition sales declined only mid-single-digit versus mid-teens in Q1, and management expects further improvement in the second half. The company is rebuilding trust with consumers and healthcare professionals, and the drag is clearly fading.
Cost savings and margin
Underlying trading operating profit (UTOP) margin was 16.4% in H1, down 10 basis points year-on-year, but that was against a heavy set of headwinds (input costs, tariffs, FX, recall). The Fuel for Growth program delivered CHF 600 million of incremental savings in the half, bringing cumulative savings to CHF 1.7 billion, ahead of plan. Manz noted:“In the first half, we delivered CHF 600 million of incremental procurement and operational efficiency savings, slightly ahead of plan, bringing cumulative savings to CHF 1.7 billion.” — Anna Olive Manz, Chief Financial Officer · 2026-07-23 A one-off pension curtailment gain of 30 basis points was included in “others,” but management was careful to classify it as non-recurring.
Free cash flow was strong at CHF 3.4 billion, and net debt fell from CHF 60 billion to CHF 56.3 billion, supported by better working capital. The company reaffirmed its full-year free cash flow guidance of above CHF 9 billion.
Context against prior quarters
This is not Nestlé’s first turnaround narrative. In the July 2025 call, then-CEO Laurent Freixe had already laid out the “virtuous circle” and expressed confidence: “We are very, very confident with our strategy the way it is unfolding... the Nestlé virtuous circle is designed to make us grow and win in that kind of context.” — David Hancock, Head of Investor Relations · 2025-04-24 What has changed is the explicit focus on RIG as the primary value lever, the decisive portfolio action, and the evidence of broad-based acceleration. In the April 2025 call, Manz had said: “we’ve taken the majority of our price through Q1, obviously, we get the full benefit of that as we move into the second quarter.” — Anna Manz, CFO · 2025-04-24 Now the narrative has shifted from pricing-led growth to RIG-led growth, and the first-half numbers show that shift is gaining traction.
The market’s reaction will hinge on whether Nestlé can sustain RIG above 2% and deliver the tightened 3–4% organic growth guidance. Input costs are easing for coffee and cocoa, but Middle East energy and transport costs remain a risk. As Manz put it: “I'm confident in the first half margin guidance. And I think we've proven over the last 18 months that we have the levers to manage this.” — Anna Olive Manz, Chief Financial Officer · 2026-07-23
Nestlé is still in the early innings of its turnaround, but the first-half evidence suggests the strategy is working. The real test will be consistency and whether the pet-care and European bumps prove truly transient.