Nestlé growth beats expectations, but Russia costs it CHF 1.6 billion in assets

Nestlé is selling more products, giving its turnaround fresh momentum. The Vevey-based food group reported organic sales growth of 4 per cent for the third quarter of 2026, with figures released on Thursday, 22 October beating expectations chiefly because of stronger volumes. Alongside that progress, however, Nestlé has removed its Russian business from its consolidated accounts following its placement under forced administration, writing off CHF 1.6 billion in assets.

The developments illustrate two very different challenges facing the Swiss group. Its core business is enjoying a broader recovery. In Russia, political decisions determine whether Nestlé can retain control of its operations.

Demand improves across every region

Quarterly sales reached CHF 22.8 billion. The key measure of underlying performance, however, was real internal growth, or RIG, Nestlé’s measure of growth beyond price increases. It reached 2.8 per cent, against analysts’ expectations of just 1.5 per cent. Pricing contributed 1.1 per cent.

Chief executive Philipp Navratil also exceeded his own longer-term ambition of sustaining real internal growth above 2 per cent. This was the first quarter in more than four years in which Nestlé had moved clearly above that threshold. It marks an important step after years characterised by price increases, weak volumes and difficulties in execution.

Volumes rose in every sales region, with emerging markets performing particularly well. Nestlé also sold more products in North America, despite inflation weighing on consumer sentiment. Pet food was a particular source of strength across the group. That business accounts for roughly a quarter of Nestlé’s sales, giving its performance considerable weight.

Organic growth over the first nine months reached 3.7 per cent, including 1.9 percentage points from real internal growth. Reported sales since January remained stable at CHF 65.9 billion. The distinction matters: organic growth excludes factors including exchange-rate movements and changes in the group’s portfolio, so it does not necessarily translate into equivalent growth in Swiss-franc sales.

Navratil’s overhaul gains momentum

Navratil has led Nestlé for just over a year. Together with new chairman Pablo Isla, he is tasked with stabilising the world’s largest food group after leadership upheaval and restoring reliable growth. Nestlé owns brands including Nespresso, Maggi and KitKat and employs around 270,000 people worldwide.

Stronger volumes are particularly important to that effort. Price increases can support revenue in the short term, but selling more products provides a clearer indication of underlying demand. Improvement across all regions also makes these results more significant than a recovery confined to a handful of markets.

Nestlé wants to concentrate its resources on businesses where it is especially competitive and on areas with strong potential. Streamlining its portfolio is part of that approach. In September, the group agreed to sell its consumer-facing vitamins, minerals and supplements business for $1 billion. That agreement forms part of the restructuring; it does not mean the sale has already been completed.

For investors in Switzerland, the question remains whether a strong quarter can become a sustained improvement. Nestlé’s share price had barely recovered since Navratil took over, although its direction had been positive in recent weeks.

Russia leaves the consolidated accounts

The operational progress contrasts with Nestlé’s loss of control in Russia. In September, President Vladimir Putin announced that the group’s Russian business would be placed under forced administration. Nestlé consequently deconsolidated those operations at the end of September, meaning they are no longer included in its accounts as a business under its control.

The resulting write-off covers CHF 1.6 billion in assets. It does not affect the published sales figures: Nestlé has excluded the Russian business from those figures since Russia’s invasion of Ukraine in 2022. The group describes the impact on its 2026 profit as limited.

The business nevertheless has economic significance. It represents around 2 per cent of group sales and contributes 3 to 4 per cent of operating profit. Nestlé’s continued presence in Russia has repeatedly drawn criticism. The company has defended remaining there on the grounds that it wants to keep supplying the population with basic food products.

Whether Nestlé can regain control remains unresolved. Putin had held out the prospect of returning the business under certain conditions. Other companies placed under forced administration have, however, frequently faced compulsory sales to people in his circle. That is a possible scenario for Nestlé too, rather than an established outcome.

Consistency is the next test

For the full year, Nestlé expects a higher operating profit margin and free cash flow of more than CHF 9 billion. That cash generation is important for funding its dividend. An increase therefore appears possible, but the quarterly results do not constitute a decision to raise the payout.

The next test is to maintain stronger volumes while improving profitability. For shareholders, the distinction is between an encouraging set of results and evidence that the turnaround can deliver consistently over time.

Vontobel analyst Jean-Philippe Bertschy sums up the challenge: “The recovery is gaining credibility, but consistency remains the real test.” The latest quarter strengthens the case for Navratil’s approach, without settling that question.

Nestlé therefore faces two overlapping tasks with very different limits on its influence. Navratil must turn the latest improvement in demand into a durable growth trend. In Russia, the Swiss group must manage a situation whose next phase is, for now, beyond its control.