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Nestlé Is Sued Over Water -- WSJ

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08/19/2017 | 08:49am CEST
By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 19, 2017).

Nestlé SA is facing a lawsuit in the U.S. alleging that its Poland Spring brand is "common groundwater" rather than spring water, which the suit claims makes the marketing of Poland Spring water a "colossal fraud."

The legal challenge comes as Nestlé -- the world's biggest packaged foods company -- has sharpened its focus on bottled water, a lucrative business that brought in global sales of 7.9 billion Swiss francs ($8.2 billion) last year.

The lawsuit, filed this week in a Connecticut district court by 11 consumers who are also seeking class-action status, says that while Nestlé markets Poland Spring as "100% natural spring water," using images of pristine mountain or forest springs that help it charge a premium, the product doesn't meet the federal definition of spring water.

The company dismissed the lawsuit as being "without merit and an obvious attempt to manipulate the legal system for personal gain."

The suit, against Nestlé's North America water unit, argues that the company has been "breaching and exploiting its customers' trust to reap massive undue sales and profits." It says Nestlé's Poland Spring water doesn't come from a water source that complies with the U.S. Food and Drug Administration's definition of spring water, but instead contains groundwater "collected from wells it drilled in saturated plains or valleys where the water table is within a few feet of the earth's surface."

The plaintiffs are seeking refunds of the premiums they have paid, which they describe as unjustified, or minimum statutory penalties under state false advertising laws.

The FDA defines spring water as "water derived from an underground formation from which water flows naturally to the surface of the earth." It also details how this water should be collected.

"Poland Spring is 100% spring water," said Nestlé in a statement. "It meets the FDA regulations defining spring water, all state regulations governing spring classification for standards of identity, as well as all federal and state regulations governing spring water collection, good manufacturing practices, product quality and labeling."

The lawsuit alleges none of Nestlé's eight purported natural springs, all located in Maine, contains a genuine spring under FDA rules and accuses the company of building man-made springs on seven of its sites "to feign compliance with FDA regulations." On the eighth site, it uses a machine to sustain the Poland Spring, which ran dry nearly 50 years ago and is defunct, claims the suit.

The Vevey, Switzerland-based company has come under fire regarding Poland Spring before. In 2003 the company settled a U.S. class action for $12 million. That lawsuit claimed that the water in Poland Spring bottles comes from wells, not bubbling springs, and isn't as pure as its advertising claims. Nestlé at the time described the settlement as a fair solution.

Nestlé recently identified bottled water as being one of its priority areas for investment. The company in recent years has boosted investment in the U.S. market for bottled water, building production lines and rolling out new flavors in a bid to take advantage of rising consumer concerns about sugary soda. In March, U.S. annual sales of bottled water overtook soda sales for the first time ever.

Last year, Nestlé's bottled water business delivered the strongest sales growth among all categories other than pet care , another high-priority area for Nestlé. The company owns about 50 bottled water brands: In addition to Poland Spring and Ice Mountain, it also sells Perrier, San Pellegrino and Buxton.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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Financials ( CHF)
Sales 2017 90 320 M
EBIT 2017 14 078 M
Net income 2017 9 941 M
Debt 2017 13 537 M
Yield 2017 2,96%
P/E ratio 2017 24,65
P/E ratio 2018 22,72
EV / Sales 2017 2,94x
EV / Sales 2018 2,83x
Capitalization 251 618 M
Duration : Period :
Nestlé Technical Analysis Chart | NESN | CH0038863350 | 4-Traders
Technical analysis trends NESTLÉ
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 85,9  CHF
Spread / Average Target 6,2%
EPS Revisions
Ulf Mark Schneider Chief Executive Officer & Director
Paul Bulcke Chairman
Magdi Batato Executive Vice President & Head-Operations
François-Xavier Michel Marie Roger Chief Financial Officer & Executive Vice President
Stefan Catsicas Chief Technology Officer & Executive VP
Sector and Competitors
1st jan.Capitalization (M$)
NESTLÉ11.23%260 777
DANONE9.95%52 208
GENERAL MILLS, INC.-7.50%32 759