Nestle sheds water stake as it eyes faster growth

By Richa Naidu

LONDON, July 23 (Reuters) - Nestle on Thursday said it expects to raise around €3 billion ($3.43 billion) from a joint venture with investment firm Platinum Equity for its water and premium beverages business, a long-awaited deal it has been courting since 2024.

The company also posted slightly better than expected second-quarter organic sales growth as prices and sales volumes increased. The world's biggest packaged food company said it now expects full-year organic sales to grow 3% to 4%, instead of its previous target of "around 3%".

Nestle and Platinum Equity would each own 50% of the joint venture, which will be named Peranel, the company said. Its portfolio will comprise more than 30 brands sold in 120 countries, including S.Pellegrino, Source Perrier and Acqua Panna, the Nestle Pure Life brand and other major local water brands. 

Nestle said in a statement the transaction assigned an enterprise value of €4.9 billion to the new business, which implied cash proceeds of €3 billion. It did not elaborate further and the company declined to discuss the deal's financial details.

 Consumer goods companies from Unilever to Reckitt are increasingly whittling away brands and businesses under investor pressure to focus on highest growth segments. Nestle's water business, while profitable, has lagged its brands such as Nescafe and KitKat in terms of margins and growth potential.

The group's CEO Philipp Navratil has sought since his appointment last year to improve growth and profitability by focusing on core brands. Reuters reported ​in May ​last year ⁠that Nestle had hired Rothschild to explore a partnership or ​sale of a stake in ​its ⁠European water business while retaining part ownership.

"Nestle's strategy is designed to put it back on the sort of path we took for granted a few years ago," RBC analyst James Edwardes Jones said. "We believe progress is being made, but it is too early to call it a success."

Nestle said its second-half underlying trading operating profit margin would be higher than the first half of the year thanks to lower coffee and cocoa costs. It said, however, that it had also seen "some higher transportation and energy costs arising from the Middle East conflict."

"The areas seeing the most impact from the Middle East conflict are in our Asia, Oceania and Africa business," finance chief Anna Manz told journalists. 

"We haven't quantified the impact from Middle East conflict for the second half," she added.

Organic sales in the quarter ended June 30, which exclude exchange rate effects and acquisitions, rose 3.7%, the group said. Analysts had on average expected organic sales growth of 3.6%.

Nestle's 1.9% price increases were ahead of the average analyst estimate of 1.8%. Real internal growth - or sales volume - expanded 1.8%, meeting expectations.

(Reporting by Richa Naidu; Editing by Muralikumar Anantharaman, Christopher Cushing and Tomasz Janowski)