Nestle Flags More Price Hikes as Coffee and Cocoa Costs Triple, Shares Slide 5%

Nestle (SWISS: NESN) is signaling that more price hikes could be on the horizon, as rising U.S. tariffs and surging commodity costs continue to squeeze margins at the food giant. CEO Laurent Freixe expressed some satisfaction with the price increases already pushed through in the first half of the year but didn't rule out dialing prices up again later in 2025.

During the earnings call, Freixe acknowledged the tough environment: prices for key inputs like coffee and cocoa are hitting historic highs. Arabica coffee prices have more than doubled since early 2023, and cocoa has tripled over the same period. This double whammy is forcing the company's hand. "We might need a little bit more [pricing action], but most of it is already done and will be seen reflected in the next quarters," he said, hinting that customers will likely feel the pinch again.

Shares of Nestle were not thrilled by the news, sliding nearly 5% in early London trading. Still, the packaged goods leader trumped expectations by posting 2.9% organic sales growth in H1 2025, slightly beating analyst forecasts. That growth was largely fueled by price increases (2.7%), which outpaced estimates as Nestle leaned on pricing power to absorb rising input costs.

Raw materials are the crux of the problem. Nestle flagged coffee and cocoa soaring costs that are unlike anything recently seen. The company's CFO Anna Manz highlighted early impacts from U.S. tariffs and currency swings, particularly a stronger Swiss franc, as additional drag. She warned that headwinds will intensify in the second half, predicting operating margins will take a bigger hit as cost inflation trumps price hikes.

Reported sales dropped 1.8% to 44.2 billion Swiss francs ($55.7 billion), missing analyst targets. The underlying operating margin slipped to 16.5%, down from the previous period. Nestle remains confident about its full-year outlook, forecasting organic sales growth to accelerate compared to 2024 and maintaining a 16%+ operating margin, but it's clear the margin squeeze is real and ongoing.

This isn't the only pressure point for Nestle. Under Freixe's leadership since September, the company has been pruning and prioritizing. He's pushed a "fewer, bigger, better" strategy, zeroing in on six core growth areas such as infant formula, Nescafé Espresso Concentrate, and Purina's premium pet foods. Alongside this shake-up, Nestle is conducting a review of some underperforming vitamin brands, including Nature's Bounty, with divestments on the table.

Compared with peers like Unilever (LON: UL) and Danone (EPA: BN), Nestle's stock has trailed in recent years, weighed down by slower growth and a flurry of acquisitions under the previous regime that arguably diluted focus. Freixe's approach aims to tighten that ship, but rising costs and tariff threats are now shaping the battleground.

At this point, the question might be: how much more price pain can consumers stomach before volume takes a hit? The interplay between soaring commodity prices and tariff burdens is squeezing margins tight. For Nestle, the balancing act between absorbing costs and passing them on looks set to continue-whether shoppers like it or not.