Nestlé Q2 RIG expected to accelerate, with FX and lower costs supporting margin recovery

Overview

This report is Goldman Sachs' company research update on Nestlé (NESN.S) ahead of its H1 2026 earnings release. The core view is that Q2 RIG will improve to +1.7% from +1.2% in Q1, with organic sales growth expected to reach +3.6%; at the same time, the recent weakening of CHF against USD and EUR, the subsequent decline in coffee and cocoa costs, progress on asset disposals, and self-help improvements will collectively support cash flow and margin recovery.

Core views

Goldman Sachs believes Nestlé's transformation is beginning to deliver, and that achieving its FY27e 2% RIG target is feasible, driven by sustained momentum in pet care, especially cat food, and resilience in the coffee business. On valuation, CY27 P/E is 17.4x, or 16.2x excluding L'Oréal, EV/EBITDA is 11.8x, and dividend yield is 3.8%; Goldman Sachs believes the valuation remains attractive.

Analysis framework

The report combines forecasts for the upcoming H1/Q2 results, regional and category retail tracking data, FX sensitivity, commodity cost trends, asset disposal progress, free cash flow, and valuation models to assess Nestlé's near-term earnings cadence and medium-term margin recovery path.

Methodology notes

• Valuation methodsEqual-weighted DCF and valuation multiple method

  The 12-month target price of CHF95 is derived using an equal weighting of DCF valuation and multiple-based valuation.

  DCF valuation is CHF93/share, using a WACC of 7.4% and a 2.0% terminal growth rate; multiple-based valuation is CHF97/share, using a target P/E of 20x applied to Q5-Q8 forecasts.

• Operating trackingRegional and category tracked sales

  U.S. and European 12-week tracked sales data are used to observe category momentum in pet care, coffee, VMS, infant formula, and others.

  U.S. tracked sales show flat total sales and volume down 3.3%; European tracked sales are up 0.5%, but infant formula remains affected by the recall. The report also notes that Nielsen does not cover D2C components such as Nespresso.

• Factors and M&AGS factor profile and M&A Rank

  Goldman Sachs uses growth, financial returns, valuation multiples, and composite indicators to compare stock characteristics versus the market and peers, and uses M&A Rank to assess the probability of a potential acquisition.

  The report discloses Nestlé's M&A Rank as 3, indicating a low probability of being acquired, and this is typically not included in the target price.

Asset mapping & comparison

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

• Nestlé (NESN.S)

  Research target and Buy-rated stock

  Strengths

  Pet care and coffee demand are resilient, and the FY27e 2% RIG target is considered achievable; free cash flow, lower costs, and FX tailwinds support delivery of the transformation.

  Weaknesses

  H1 is still dragged by coffee and cocoa inflation, Creamers has operating issues in the U.S., European consumer sentiment is weak, and the infant formula recall continues to affect growth.

  Comparison

  Q2 organic sales growth forecast of +3.6% is slightly above the consensus of +3.5%; Goldman Sachs' FY26/27 EPS forecasts are about 2-3% above consensus.

  Risks

  Category growth below expectations, slower-than-expected margin recovery, value dilution from asset spin-offs or M&A, FX risk from CHF reporting currency, and free cash flow below expectations.

• CHF FX exposure

  Affects reported sales, dividend payments, and cash flow translation

  Strengths

  CHF has recently weakened against USD and EUR, easing the FX drag on FY26 reported sales and benefiting cash flow generation.

  Weaknesses

  Over the long term, Swiss franc appreciation has consistently been a drag on reported sales growth, and the company pays dividends in CHF while Swiss sales account for only about 1%.

  Comparison

  The FY26e FX drag on sales is expected at -3.4ppt, smaller than FY25's -5.7ppt.

  Risks

  If CHF strengthens again, reported sales, cash flow, and valuation sentiment may come under pressure.

• Pet care and coffee business

  Key category supports for RIG improvement and medium-term growth

  Strengths

  The launch of new cat food capacity, momentum in pet care, and resilient coffee demand support Q2 growth; Nespresso is expected to contribute to Q2 performance.

  Weaknesses

  U.S. packaged coffee volumes are down sharply, Creamers is affected by Coffee Mate operating issues, and the infant formula recall in Europe is weighing on related categories.

  Comparison

  U.S. VMS volume is strong at +11.4%, but packaged coffee volume is -18.1%; European pet food sales are +2%, while infant formula sales are -34.1%.

  Risks

  Channel tracked sales do not fully cover D2C business, and if actual consumer demand is weaker than tracking data or operating issues persist, RIG recovery may be below expectations.

Key data

• Q2 2026 organic sales growth forecast+3.6%Above the company-compiled consensus of +3.5%; RIG is expected at +1.7%, and pricing at +1.8%.
• H1 2026 UTOP margin forecast16.2%Still affected by coffee and cocoa inflation.
• FY26e UTOP margin forecast16.4%H2 is expected at 16.5%, up 80bps year on year; H1 is expected to contract 30bps year on year.
• FY26 free cash flow forecastCHF9.6bnSupported by lower commodity costs, self-help improvement, and the recent strengthening of USD against CHF.
• FY26/27 EPS revisionRaised by about 2%Reflects latest industry trends and FX changes; Goldman Sachs says its FY26/27 forecasts remain about 2-3% above consensus.
• Target price and ratingBuy; CHF95Unchanged 12-month target price; DCF valuation CHF93/share, multiple-based valuation CHF97/share.
• Current price and implied upsideSFr83.29; about 14.1%Upside is calculated based on the CHF95 target price and SFr83.29, excluding dividends.
• Valuation metricsCY27 P/E 17.4x; 16.2x excluding L'Oréal; EV/EBITDA 11.8xThe report also mentions a dividend yield of 3.8%.
• Market capitalization and enterprise valueMarket cap SFr214.6bn/US$265.2bn; EV SFr264.6bn/US$327.1bn3-month average daily trading value is SFr285.2mn/US$360.9mn.
• FX impactFY26e sales FX drag -3.4ppt, versus FY25 at -5.7pptSince May 1, CHF has fallen about 4% and 1% against USD and EUR respectively, which is favorable for cash flow.
• U.S. 12-week tracked salesSales flat; volume -3.3%VMS volume +11.4%; packaged coffee volume -18.1%; Creamers down -3.3%.
• Europe 12-week tracked salesSales +0.5%Pet food sales +2%, volume +1.5%; infant formula sales -34.1%, volume -31%.

Impact & implications

If Q2/H1 results validate Goldman Sachs' forecasts, the market may further confirm the visibility of Nestlé's RIG improvement and margin recovery. FX tailwinds, lower costs, and asset disposals will reinforce the free cash flow and deleveraging story, but investors still need to watch the pace of recovery from U.S. Creamers operating issues, European consumer sentiment, and the infant formula recall.

Risks

• Key category growth below expectations.
• Margin recovery is slower than expected.
• Asset spin-offs or M&A cause value dilution.
• Nestlé reports in CHF and has FX risk.
• Free cash flow generation is below expectations.
• U.S. Creamers and Coffee Mate operating issues persist.
• European consumer sentiment remains weak or infant formula recall recovery is slower than expected.

What to watch

• H1/Q2 2026 results to be released on July 23.
• Whether Q2 organic sales growth, RIG, and pricing meet Goldman Sachs' forecasts of +3.6%, +1.7%, and +1.8%.
• The pace of pet care growth after new cat food capacity comes online.
• The resilience of Nespresso and coffee demand.
• Whether U.S. Creamers, Coffee Mate, and packaged coffee volumes improve.
• The pace of recovery after the infant formula recall in Europe.
• How declining coffee and cocoa prices flow through to H2 margins.
• Progress on disposals of water, mainstream VMS, and ice cream businesses.
• Progress toward restoring net debt/EBITDA to the 2.5x target.
• The trend of CHF versus USD and EUR.