Swiss food giant Nestlé announced on Thursday (July 24) that its iconic KitKat chocolate and Nespresso coffee capsules may face price hikes again in the second half of this year due to potential increases in raw material costs resulting from U.S. tariffs.
CEO Laurent Freixe stated that he was “satisfied” with the broad price increases in the first half of the year, and the company is still considering whether further price adjustments are needed. “We may still need to make slight adjustments, but most of the price increases have already been implemented and will be reflected in the coming quarters,” he said during a financial conference call.
On Thursday, Nestlé’s stock price fell by 4.6% on the London Stock Exchange. The world’s largest packaged food company exceeded sales expectations in the first half of the year, mainly offsetting rising costs of coffee and cocoa raw materials by raising prices.
The company reported a 2.9% year-on-year sales increase for Nestlé and its parent company Purina in the six months ending in June, surpassing analysts’ predictions of 2.8%. Price increases accounted for 2.7% of the growth, slightly higher than the estimated 2.5%.
Freixe stated, “We are facing an unprecedented situation, as the prices of two key raw materials, coffee and cocoa, have hit record highs.” Since early 2023, Arabica coffee prices have more than doubled, while cocoa prices have more than doubled.
“We clearly need to take action. As industry leaders, we must respond quickly,” added Freixe.
Nestlé reported a 1.8% decrease in total sales, amounting to 44.2 billion Swiss francs (approximately $55.7 billion), slightly below analysts’ forecast of 44.6 billion Swiss francs. The underlying trading operating profit margin dropped by 0.9% to 16.5%.
Chief Financial Officer Anna Manz noted that the company was adversely affected by exchange rate fluctuations in the first half of the year, particularly with the appreciation of the Swiss franc and the slight impact of initial U.S. tariffs. She anticipates that pressure will further escalate in the second half of the year.
“The profit margin in the second half of the year will be significantly lower than the first half,” she said, as the benefits of price increases will be offset by “rising raw material costs, tariffs, and exchange rates.”
Nevertheless, the company maintains its sales growth target for 2025, with an improvement over 2024, aiming for a basic operating profit margin of 16% or higher.
In recent years, Nestlé’s stock has lagged behind major competitors such as Unilever and Danone due to slowing sales growth and anticipated adjustments, despite the entire industry facing pressure from rising commodity prices and intensified competition from private labels.
Since taking office in September of last year, Freixe has pledged to realign the company’s business focus, stating that a series of acquisitions by his predecessor “weakened Nestlé’s core structure.”
“We are now focusing on six core areas, adopting a strategy of ‘less, more, stronger’,” he said.
These six core product lines include: infant formula, Nescafe Espresso Concentrate, Maggi air fryer range, chocolate baking products, high-end cat food from Purina, and Nescafé Dolce Gusto Neo coffee machine series.
Additionally, Nestlé is strategically evaluating underperforming vitamin brands under its umbrella, such as Nature’s Bounty and Osteo Bi-Flex, which may result in divestment of these assets.
“All of these actions are in line with our overall strategy of ‘focus and simplify’,” Freixe said. “We are taking the right steps to lay the foundation for future growth.”