Nestle Q2 underlying sales growth accelerated, EPS 3% above consensus; Goldman Sachs maintains Buy and CHF95 target price

Overview

This report is Goldman Sachs' earnings flash on Nestle's Q2/H1 2026 results. Its core conclusion is that Nestle's Q2 underlying sales growth (RIG) accelerated, driven by the coffee business and the AOA region, while H1 profit performance was above market consensus and EPS exceeded expectations by 3%. The company maintained its FY26 organic growth and margin improvement guidance, while ongoing asset disposal plans support further delivery of its transformation story.

Core views

Goldman Sachs maintains a positive view and Buy rating on Nestle. Q2 RIG was +1.8%, in line with consensus but accelerating from Q1; emerging markets ex China delivered RIG of +3.9%, while China RIG was +0.5% and had stabilized, with trade inventory reduction completed and the impact of the infant formula recall easing. Americas RIG was +0.8%, below expectations, and US RIG was -0.6%, although petcare exit sales trends improved. H1 group margin was 16.4%, supported by cost savings and a one-off pension movement gain, offsetting infant formula recall costs and increased marketing investment.

Analysis framework

The report compares actual Q2/H1 operating data with company-compiled consensus, Visible Alpha consensus, and Goldman Sachs forecasts, focusing on regional, category, margin, cash flow, and valuation analysis. The valuation section uses an equally weighted blend of DCF and target P/E multiples, alongside the 12-month target price, current valuation multiples, and dividend yield to assess risk and return.

Methodology notes

• Valuation methodsDCF and Multiples Valuation Blend

  The 12-month target price of CHF95 is derived equally from DCF and multiples valuation.

  The DCF valuation implies an intrinsic value of CHF93 per share, assuming a 7.4% WACC and 2.0% terminal growth rate; the multiples valuation implies CHF97 per share, using a 20x target P/E applied to Q5-Q8 earnings forecasts.

• Factor AnalysisGS Factor Profile

  Goldman Sachs' factor framework compares stocks across growth, financial returns, valuation multiples, and composite factors.

  The growth factor is based on forward sales, EBITDA, and EPS growth; financial returns are based on ROE, ROCE, and CROCI; the multiples factor is based on P/E, P/B, P/D, EV/EBITDA, EV/FCF, and others; the composite factor is the average of growth, financial returns, and low-valuation characteristics.

• M&A AnalysisM&A Rank

  Goldman Sachs uses an M&A Rank from 1 to 3 to assess the likelihood of a company becoming an acquisition target.

  1 represents high probability, 2 represents medium probability, and 3 represents low probability; when a company ranks 1 or 2, Goldman Sachs typically incorporates an M&A component into the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nestle (NESN.S)

  Research subject; Goldman Sachs Buy rating with a CHF95 target price.

  Strengths

  Q2 RIG acceleration, H1 profit and EPS above expectations, FY26 guidance maintained, asset disposals progressing, and relatively attractive valuation.

  Weaknesses

  US RIG was negative, Europe RIG was flat, the nutrition business was affected by recalls and market pressure, and Nespresso margins were below consensus.

  Comparison

  The report compares actual results with company-compiled consensus, Visible Alpha consensus, and Goldman Sachs forecasts; H1 UTOP was 1.5% above consensus and EPS was 3% above consensus.

  Risks

  Key category growth below expectations, slower-than-expected margin recovery, value dilution from asset separations or M&A, CHF foreign exchange risk, and free cash flow below expectations.

• Coffee / Nespresso

  Key growth category and support for the valuation narrative.

  Strengths

  Coffee drove improvement in group RIG; coffee in Europe still delivered high-single-digit growth, and Nespresso continued to gain market share in North America.

  Weaknesses

  Nespresso Q2 OSG was below consensus, European consumption was soft with significant competitive pressure, and coffee inflation and tariffs weighed on margins.

  Comparison

  Nespresso Q2 OSG was +3.4%, below consensus of +4%; RIG was +1.5% and pricing was +2%.

  Risks

  Delayed pass-through of coffee costs, intensifying competition in Europe, and slowing consumption affecting volumes and margins.

• AOA Region

  Primary regional contributor to Q2 growth acceleration.

  Strengths

  Q2 growth was +6.5% and RIG was +4.5%; excluding Greater China, growth was +7.7% and RIG was +6.0%; India, Central & West Africa, and Indonesia delivered double-digit RIG growth.

  Weaknesses

  Nutrition market share remained under pressure, and category growth in Greater China was negative.

  Comparison

  AOA growth was significantly higher than in Europe and the Americas, making it one of the strongest regions this quarter.

  Risks

  Slower-than-expected recovery from the infant formula recall, weak category demand in certain markets, and increased commercial investment weighing on margins.

• Petcare

  Core category showing improvement.

  Strengths

  US petcare exit sales trends continued to strengthen, while Nestle saw share or trend improvements in petcare across the Americas, AOA, and Europe.

  Weaknesses

  US petcare growth was weighed down by retailer inventory reductions.

  Comparison

  Compared with Nutrition and Food & Snacks, Petcare delivered stronger share performance across multiple regions.

  Risks

  Inventory adjustments lasting longer than expected or insufficient recovery in category demand.

Key data

• Q2 Group Sales Growth+3.7%Above company-compiled consensus of +3.6%, with infant formula contributing a 30bp headwind.
• Q2 Group RIG+1.8%In line with consensus and accelerating from Q1, mainly driven by AOA and coffee.
• H1 Group Margin16.4%Above consensus, supported by cost savings and a one-off pension gain.
• H1 Group UTOPCHF7,081m1.5% above consensus, driving EPS to 3% above consensus.
• FY26 Organic Growth Guidance3%-4%Company guidance maintained; market consensus is approximately +3.4%.
• FY26 Free Cash Flow GuidanceAbove CHF9bnMarket consensus is CHF9.9bn.
• Zone Americas Q2 Growth/RIG+2.8% / +0.8%Represents 44% of FY25 sales; North America RIG was -0.6% and Latin America RIG was +4.2%.
• Zone AOA Q2 Growth/RIG+6.5% / +4.5%Represents 24% of FY25 sales; excluding Greater China, growth was +7.7% and RIG was +6.0%.
• Zone Europe Q2 Growth/RIG+1.5% / 0.0%Represents 21% of FY25 sales; coffee and petcare were stronger, while nutrition and food & snacks were under pressure.
• Nespresso Q2 OSG/RIG+3.4% / +1.5%Below consensus of +4%; European consumption was weak, but North America delivered high-single-digit growth.
• Peranel Transaction Enterprise Value€4.9bnNestle plans to establish a 50:50 joint venture with Platinum Equity for its water and premium beverages business, expected to close in H1 2027, with Nestle expected to receive approximately €3bn in cash.
• Valuation Multiples17.9x CY27e P/E; 12.2x EV/EBITDA; 4.3% dividend yieldCY27e P/E is 16.8x excluding the L’Oréal stake.

Impact & implications

The report suggests that Nestle's operational recovery is shifting from pure cost control toward improvements in volume and regional growth. AOA, coffee, and certain emerging markets are the primary sources of growth acceleration; stabilization in China and the easing impact of the infant formula recall should help reduce drag. Progress on asset disposals could release cash, simplify the business portfolio, and strengthen market confidence in transformation execution. Valuation is at a level Goldman Sachs considers attractive, so the combination of earnings upside and stable guidance results in a positive risk-reward profile.

Risks

• Key category growth below expectations.
• Slower-than-expected margin recovery.
• Value dilution from asset separation or M&A transactions.
• Foreign exchange risk as Nestle reports results in CHF.
• Free cash flow generation below expectations.
• Continued impact from the infant formula recall or ongoing market share pressure in the nutrition business.
• Higher transportation and energy costs resulting from conflicts in the Middle East.

What to watch

• Further details from management's earnings call on H2 margins, cost savings, coffee and cocoa costs, and transportation and energy costs.
• Whether FY26 organic growth remains within the 3%-4% range and whether RIG continues to accelerate from 2025.
• When US petcare retailers' inventory reductions will end and whether improved exit sales can translate into shipment growth.
• The stability of the China business and the recovery progress following the infant formula recall.
• Whether the Peranel transaction can close as planned in H1 2027 and how the approximately €3bn cash proceeds will be used.
• Progress on the disposal of VMS and ice cream businesses after their designation as assets held for sale.
• Whether H2 margins can remain close to H1 levels and the returns on increased marketing investment in terms of share and growth.