Nestlé risks SFr1bn sales hit from infant formula recall
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Nestlé is facing a potentially costly setback after launching a global recall of several infant formula brands, a move that analysts warn could weigh on both near-term sales and longer-term brand equity, as reported by the Financial Times.
The Swiss food group said on Monday it was recalling specific batches of infant formula, including NAN, BEBA, Guigoz, SMA and Alfamino, due to the possible presence of cereulide, a toxin that can cause nausea and vomiting. The recall was initially announced in Europe before being extended this week to Asia, Latin America, the Middle East and Africa, ultimately affecting 46 countries.
According to estimates cited by the Financial Times, analysts at Jefferies calculate that around 1.3 per cent of Nestlé’s group sales could be exposed, implying a potential hit of up to SFr1.2bn. Barclays analyst Warren Ackerman put the possible impact in a similar range, estimating that between 0.8 and 1.5 per cent of group sales could be at risk. Nestlé shares are down 4.6 per cent so far this year.
The episode represents an early test for chief executive Philipp Navratil, who took the helm in September following the dismissal of Laurent Freixe over an undisclosed romantic relationship with a subordinate. Navratil has been tasked with restoring investor confidence, reviving growth and reducing debt at the maker of Nespresso and KitKat, while overseeing plans to cut 16,000 jobs over the next two years.
While the immediate financial impact may be manageable, analysts caution that the reputational implications could be more enduring. The Financial Times reported that some see the recall as compounding concerns about Nestlé’s operational execution and corporate governance, following a series of recent controversies.
The group has already faced scrutiny in France, where authorities raided its offices last July as part of an investigation into the alleged use of unauthorised filtration methods in bottled mineral water. In the US, Nestlé was also forced to recall frozen meals last year over contamination concerns.
Jean-Philippe Bertschy, an analyst at Vontobel, told the Financial Times that reputational risk outweighed the direct financial exposure. He said the incident raised questions about execution and communication under the new leadership, areas where expectations had been high, particularly given the sensitivity of the infant nutrition category.
Nestlé, for its part, has sought to downplay the impact. The company said the recall related to “significantly less than 0.5 per cent” of annual sales and that it did not expect a material financial effect, although it has not disclosed how this figure was calculated. It added that the issue was identified during routine testing of arachidonic acid oil, an ingredient used in the formula, and said no illnesses have been linked to the affected products to date.
Analysts note that consumer reactions are likely to vary by market. Jefferies analyst David Hayes highlighted China as a particular risk, pointing to Danone’s 2013 Dumex recall, which eliminated roughly €800mn in sales there. By contrast, in the US, Abbott Laboratories managed to recover market share within a year after its 2022 Similac formula recall.
For Nestlé, the coming months will be closely watched. Beyond the balance-sheet impact, investors will be looking for evidence that management can reassert control, rebuild credibility and demonstrate that longstanding quality and governance processes are fit for purpose.
