Why Nestlé will defy the consumer breakup trend

The Kraft Heinz

21/07/2026 10:57

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan

    DUBLIN, July 21 (Reuters Breakingviews) - It's part of the job description for a consumer-goods CEO to spot trends early. The unmissable one in the sector right now is a wave of corporate breakups: Unilever ULVR.L is doing one, as is Keurig Dr Pepper KDP.O, while Kraft Heinz KHC.O  considered it. One big question on bankers' and analysts' minds, therefore, is whether Nestlé NESN.S, the $274 billion KitKat-to-kibble conglomerate, will persist in its current sprawling form. The answer is probably yes - and with good reason.
The Swiss behemoth's boardroom has just emerged from a volatile period. CEO Philipp Navratil took over last September as the third boss in five years. He inherited stagnating sales volumes, competition from supermarket own-brand goods, and the threat of GLP-1 drugs eating into snack demand. Just ahead of his appointment, Nestlé traded at around 13 times expected EBITDA, its lowest valuation multiple since well before the pandemic.
It's no surprise, then, that the breakup question has been hanging over the company of late, particularly since rivals' corporate machinations accelerated. In February, one analyst asked Navratil whether Nestlé was "too big". The company has 2,000 brands and spans nearly 200 countries. It straddles everything from Nescafé coffee, Purina pet food, Aero chocolate bars, Sanpellegrino sparkling water and so-called nutrition offerings like Gerber baby food. Analysts expect $110 billion of revenue this year, which is slightly more than Unilever, Reckitt Benckiser RKT.L and Danone DANO.PA combined.
Navratil, responding to the analyst's "too big" question, defended Nestlé's scale, arguing that it gives the group greater clout in negotiations with stores. It helps that investors seem on board with his vision, at least in relative terms. The company now trades at nearly 15 times expected EBITDA, which represents a premium to Unilever's multiple of 12. 
That's partly because Nestlé is more focused than some peers, despite its greater size. The Swiss company is effectively a food business with global manufacturing efficiencies. Unilever, by contrast, has peddled everything from mayonnaise and stock cubes to laundry detergent and shampoo. It also helps that Navratil is focusing on three core growth areas: coffee, pet care and nutrition. Investors perceive them as higher growth and also less vulnerable to competition than some other areas of the consumer-goods sector, like ready made meals and cleaning products.
Another factor arguing against a breakup is Nestlé's relatively thin dividend cover. This year, analysts project total payouts of some $10 billion from free cash flow of roughly $12 billion, using Visible Alpha data. That leaves little room for maneuver. If Navratil sold or spun off too many brands, he may not be able to pay expected dividends any more, potentially angering any cash-hungry shareholders.
There's a separate debate to be had about whether Nestlé's shareholder payouts are too high, given all the product and advertising investment that will be required to get the top line moving again. For now, however, it's another good reason for Navratil to ignore the wider sector's fashion for breakups.
     
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CONTEXT NEWS
Nestlé CEO Philipp Navratil said on February 19 that the Swiss consumer group's scale was an advantage, in response to an analyst question about whether the company was "too big" and whether its new structure could make parts of the business easier to spin off.
Unilever on March 31 said that it would combine its foods business with U.S. peer McCormick. Kraft Heinz, another consumer-goods group, on February 11 said that it would "pause" its work related to a previously announced corporate breakup.

(Editing by Liam Proud; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))