H1 2026: group revenue up 7.1%. Alcoholic beverages operating income down 24.6%.

Suntory has walked away from a £150 million maturation facility in East Ayrshire.

Sit with that before reading anything else in the half-year. A maturation warehouse is not a marketing decision or a cost line. It is a bet on how much Scotch the world will want in the late 2030s, placed in concrete today. Brown spirits businesses commit capital eight to fifteen years ahead of the demand they are serving. Cancelling the building is the plainest statement a distiller can make about that demand.

Everything else in the release reads differently once you hold that decision first. The destocking language. The reconfirmed guidance. The segment splits. All of it.

The Least Profitable Division Is Now the Spirits Division

Start with the group. Revenue including liquor tax reached ¥1,733.2 billion, up 7.1% year-on-year. Excluding liquor tax it rose 6.5% to ¥1,550.6 billion. Group operating income fell 2.6% to ¥126.3 billion. Adjusted operating income, stripping non-recurring items, fell 8.9% to ¥129.1 billion. Net profit attributable to owners dropped 19.2% to ¥48.2 billion.

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What is happening in Spirits? Why are RTDs growing while the rest of the categories are not?

Filiberto hosts a discussion with Chris Maffeo and spirits veteran Olivier Rouche. Olivier recounts his 35 years at Pernod Ricard in commercial strategy & negotiation and his new consultancy, training, and coaching work. They examine the spirits industry’s rapid transformation as premiumization stalls, consumption slows in traditional markets, and demand shifts toward lower-alcohol options.

The group highlights operational and margin challenges for spirits companies entering RTDs, including reliance on third-party production, canning and small-format constraints, best-before dynamics, promo pressure, and retailer assortment tightening.

They distinguish multiple RTD sub-markets (value retail, grab-and-go, multipacks, premium on-trade cocktails) and expect more partnerships with bottlers/distributors. Olivier advises aligning RTDs with company strategy, quantifying margin dilution versus volume-driven value expansion, and ensuring sustainable long-term operations, while warning against rushed launches, cost-driven pricing, and ignoring local consumer differences.

00:00 Meet the Guests

01:12 Olivier’s Career Shift

04:17 Spirits Industry Shakeup

13:27 RTDs Strategy and Execution

24:08 RGM Mistakes and Wrap-Up

2026 Advisory Scope

I work on a small number of high-stakes growth situations where clarity is missing, and decisions matter.

Focused Engagements: Learn more here. I work embedded within teams of general managers and senior leaders in FMCG companies to answer questions that shape focus, investment, and growth decisions.

Growth Operating System Diagnostic: Learn more here. For fast-moving consumer goods businesses where the numbers aren’t moving, despite a strategy that should be working. Most FMCG performance problems are not located where leadership thinks they are. The Diagnostic is a solid way to solve this challenge.

Online Strategy Workshops: Learn more here. One hour. One strategic question. A sharper view of where your growth is going. Small-group online workshops for senior FMCG leaders, led directly by Filiberto Amati. Three topics, each run repeatedly throughout the year.

I work with a limited number of situations each year. For discreet conversations or serious enquiries, you can reach me directly on LinkedIn.

Q2 2026: net sales down 3.6% in constant currency to $3,096.5 million. Financial volume down 5.4%. Net sales per hectolitre up 2.3%. Underlying pre-tax income down 27.8%.

Two numbers explain the quarter better than any of those. Revenue per hectolitre rose 2.0% in constant currency. Underlying cost of goods per hectolitre rose 6.3%.

One piece of context makes it harder to read. The FIFA World Cup opened on 11 June, hosted across North America, with 78 of 104 matches in the United States. It landed inside this quarter, and volumes went down anyway.

The Absorption Trap

Work the loop through in order. Volume falls, so fixed manufacturing and logistics cost spreads across fewer hectolitres. Cost per hectolitre rises. Reported cost of goods per hectolitre jumped 12.1%, with underlying constant currency up 6.3%, on shipments that fell 5.4%.

To defend margin, the company takes price. Net sales per hectolitre rise 2.3%. That price sits on mainstream light and value brands, where the consumer is most sensitive, so more volume leaves. Which spreads fixed cost across fewer hectolitres again.

This is the absorption trap. It is not a pricing mistake or a cost mistake. It is a structural condition in which the standard response to each problem worsens the other. It closes around businesses with high fixed manufacturing bases and price-elastic core brands.

The external costs make it tighter. The Midwest Premium aluminium surcharge added roughly $40 million of unbudgeted cost in the quarter. The full-year expectation now sits above $130 million, against an earlier $125 million. A three-year $450 million savings programme is running against it. Cost programmes of that size are meaningful, and they are still a partial offset to a headwind the company does not control.

Overheads moved the wrong way too. Marketing, general and administrative expense rose 3.2% in constant currency, driven by general and administrative spend, prior-year incentive compensation comparisons, and a global ERP implementation. Management expects that line to fall year on year in the second half. Rising overhead on falling volume is the absorption problem reappearing, one line further down the P&L.

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Q2 2026: reported net sales up 75.6% to $7.31 billion, legacy operations up 7.3%, adjusted operating margin of 20.2%. The first consolidated quarter with JDE Peet’s inside the numbers. The company intends to separate into two listed businesses within about eighteen months.

Inside that quarter, one segment tells you why. United States Coffee took 5.0% price and lost 8.2% of volume and mix. Net sales fell 3.2%. Segment operating income fell 24.7%.

KDP did not buy a coffee business to run it. It bought one to make the coffee business separable.

The Exit Build

Set the sequence out in order. An $18 billion acquisition of JDE Peet’s closes. It consolidates for one quarter, contributing $2.80 billion of net sales and $414 million of adjusted operating income. A pod manufacturing joint venture with Apollo Global Management and KKR raises over $4.5 billion in structured equity and debt. Leverage sits at 4.4 times at the quarter close, targeted at roughly 4.1 times by year end. A $400 million synergy programme runs alongside. Then, in early 2027, Beverage Co. and Global Coffee Co. list separately.

This is the exit build: acquiring scale not to operate it, but to make an asset large enough to stand alone when you leave. Every element of the plan points that way. The synergy target exists to give both entities a cost structure at listing. The joint venture converts pod manufacturing into cash without selling the capability. The deleveraging schedule is timed to the separation date, not to a credit cycle.

It is a legitimate and quite sophisticated piece of corporate engineering. Global Coffee Co. will list with international sourcing scale, a premium portfolio in L’OR and Peet’s, and a global distribution footprint. None of that existed inside KDP eighteen months ago.

The question an operator should ask is a different one. What does the buyer of that equity actually receive, and under what conditions does the underlying category apply when they get it?

Why Coffee Has to Go

The United States Coffee numbers answer that with unusual clarity. The 5.0% price realisation led to a 8.2% decline in volume and mix. Some of the volume move is structural, since Peet’s K-Cup pods reclassified into the JDE Peet’s segment. Strip that out and single-serve pod shipments still fell 8.3% on softer demand, retailer inventory adjustments and consumer trade-down to private label.

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Q2 2026: net revenue of $817.9 million, up 10.6%. Tracked United States retail sales across the portfolio grew 31.0%. Operating income fell 47.3%. The shares dropped 14.2%.

Consumers bought roughly three times as much growth as the P&L recognised. That difference has a name inside the business. It is called trade investment, and it is now the most important line in this company.

The Toll on the Route to Market

Take the wedge apart by brand, and it stops looking like an accounting quirk.

Alani Nu grew net revenue 21.0%. Its tracked retail sales grew 55.7%. That is a gap of nearly 35 points on the fastest-growing asset in the portfolio. The core CELSIUS brand declined 11.7% in net revenue, while retail declined only 2.0%, a gap of just under 10 points. Rockstar contributed $66.5 million on retail sales down 13.0%.

The mechanism is stated plainly in the release. Alani Nu completed migration into the PepsiCo direct-store-delivery system during the quarter. That move bought reach. It also brought higher trade investment, promotional billbacks and delivery fees, all of which reduce recognised net revenue per unit.

This is the distribution toll. It is the share of gross billings a brand surrenders to reach shelves it does not own. It is charged against the fastest-growing product first. Alani Nu is now roughly 45% of the company's revenue. The better it sells, the more of it goes to the system carrying it.

That is not an argument against the PepsiCo relationship. Scale distribution is the correct move for a brand at this stage, and the reach is real. It is an argument for knowing exactly what the toll is, because right now it is larger than the growth.

The distinction that matters is temporary versus permanent. Distributor inventory rebalancing unwinds. Billbacks, promotional allowances and delivery fees do not. Management and analysts have framed the wedge as an inventory timing issue, and part of it is. The structural part is the standing cost of the route, and that portion stays in the P&L every quarter Alani Nu grows.

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H1 2026: group organic sales down 3.5%. Derma organic sales up 7.8%. Two numbers from the same balance sheet, moving in opposite directions. The gap between them is the actual story management is trying to tell investors.

A 3.5% organic decline reads like a business in trouble. Look inside the number and a different picture appears. A dermatological growth engine is expanding into mass retail. International markets are accelerating by double and triple digits. A mass-market brand’s reported decline may be a retail inventory problem rather than a demand problem. Whether that distinction holds is the real question this earnings release raises.

The headline numbers

Group net sales fell 4.5% nominally and 3.5% organically to €4,952 million. The quarterly trend moderated slightly, from a 4.6% organic decline in Q1 to 2.3% in Q2. EBIT excluding special factors fell to €768 million from €836 million, a 60-basis-point margin contraction to 15.5%. Gross margin contracted 110 basis points to 58.3%. Profit after tax reached €558 million, and EPS actually rose to €2.52, helped by the ongoing share buyback programme.

The Consumer business, the core of the group, fell 4.0% organically to €4,113 million. The Tesa Industrial Adhesive Division fell 0.9% organically to €839 million in H1. It returned to growth in Q2, up 2.5%, as e-commerce tape demand strengthened. Consumer segment gross margin held at 61.0%, down 100 basis points from 62.0%. Given the scale of the volume decline, that is a smaller erosion than the headline number might suggest.

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That Test Is the Whole Quarter.

Q1 FY2027: net sales up 36% to $479.4 million, the 30th consecutive quarter of growth. Core e.l.f. units fell roughly 3%. Organic sales excluding Rhode declined by high single digits. Management’s answer is to cut prices on 10% of the range, funded by a tariff refund.

A single pricing test tells you more about e.l.f. Beauty’s next two years than the headline growth rate does. Halo Glow Skin Tint went from $18 to $14. Retail volume rose 36%. Digital volume rose 38%.

That is a price elasticity of roughly negative 1.6. Mass beauty is not supposed to behave that way if the brand is genuinely strong.

The Growth Is Bought, and Management Has Already Told You So

Start by separating what e.l.f. acquired from what it grew. Rhode contributed approximately $160 million of the quarter’s $479.4 million, around 33% of total net sales. Net sales rose $125.7 million year on year. Rhode alone is larger than that increase.

Back Rhode out and the legacy business generated roughly $319 million against $353.7 million a year earlier. That is close to a 10% decline. Every point of reported growth in the quarter came from the acquisition, and then some.

The raised guidance says the same thing in management’s own numbers. Full year net sales are now guided to $1,938 million to $1,968 million, growth of 18% to 20%, up from 12% to 14%. Organic growth guidance sits at 6% to 7%. So roughly twelve of the eighteen to twenty points are inorganic. The upgrade is mostly an acquisition performing ahead of plan, not a core business reaccelerating.

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H1 2026: group organic growth of 3.2%, ahead of the 2.5% consensus. Adhesive Technologies grew 4.5%. Consumer Brands grew 1.7%. Strip hair care out of the consumer division and what is left grew 0.5% in Q1. That last number is the one an FMCG operator should be reading.

Henkel is reported as a consumer goods company. It behaves as an industrial adhesives company that owns a consumer division.

The Acceleration Everybody Cheered Was Industrial

The quarterly sequence exposes it. In Q1 2026, the two divisions were genuinely balanced. Adhesive Technologies grew 1.7% organically. Consumer Brands grew 1.8%. Group organic growth came in at 1.7%, split 1.0 points of volume and 0.7 points of price. On those numbers, Henkel looked like a company recovering on both engines at once.

Then the half year landed at 3.2%, and the two engines separated. Adhesive Technologies reached 4.5% for H1. Back out Q1, and the implied Q2 figure is somewhere near 7%. Consumer Brands reached 1.7% in H1, implying a Q2 close to 1.6%. The consumer business did not accelerate at all. It decelerated slightly while the industrial business roughly quadrupled its growth rate.

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FY26: organic net sales down 2.0%, organic operating profit up 2.0%, margin up 116 basis points. The shares rose almost 8% on the restructuring plan. The dividend fell from 103.48 cents to 50 cents.

Underneath all of it sits a number that should worry any operator in premium spirits. Group organic volume fell just 0.4%. Price and mix took away 1.6 points.

Diageo did not lose its consumers this year. It lost the premium.

The Profit Growth Was Paid For by the Brands

Organic operating profit rose 2.0% on falling revenue. Look at how. The Accelerate programme delivered $514 million of savings, roughly 85% of its target. Group organic marketing spend fell 13.1%.

Read that alongside the regional detail and the mechanism becomes hard to miss. Europe cut marketing 17.2% and reported operating profit up 15.7%. Asia Pacific cut marketing 16.3%. North America cut 13.6%. The two regions that held their marketing broadly flat were Latin America and Caribbean, at plus 0.3%, and Africa, at minus 1.2%. Those are also the two regions that grew volume.

This is the A&P dividend. It is profit a company pays itself out of its own brand investment. It books as margin expansion in the year it is taken, and it is repaid in price and mix later. It is a genuine choice, not an accounting trick. Chief Financial Officer Nik Jhangiani was clear on the source. Accelerate savings came from more efficient marketing and overhead spend, set against gross profit that fell $506 million organically on mix, inflation and tariffs.

Sir Dave Lewis made the forward commitment explicit. The restructuring savings, he said, will allow the company to “invest in the turnaround without needing to reduce operating profit”. That is the right promise and the correct sequence. It is also the single testable claim in this release. FY26 did the opposite: it protected operating profit by reducing investment. FY27 has to reverse the direction while net sales are guided broadly flat.

The problem is what advertising and promotion actually buys in this category. It buys the permission to charge more. Nothing else in a spirits P&L does that job. Distribution buys availability, innovation buys trial, and A&P buys the willingness to pay a premium over the shelf alternative. Cut the input and the output arrives two years later as negative price and mix. That is exactly the line that fell 1.6 points this year.

Volume Held. Value Did Not.

For a decade, the premium spirits model ran one way. Volume flat or slightly down, price and mix positive, margin up. FY26 inverted it. Volume down only 0.4%, price and mix down 1.6.

The regional split shows how differently that arrived. North America saw volume fall 6.7% and net sales fall 8.4%, so roughly 1.7 points of negative mix on top of a real volume loss. Asia Pacific carries around 3.9 points of negative mix on a 2.4% volume decline. Greater China is the extreme case, with net sales down 34.9% and Chinese white spirits volume down 41.9% due to policy changes. Strip Chinese white spirits out, and the group grew about 1.5% organically.

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Q2 2026: organic net sales down 1.3%. Volume and mix down 2.6 points. A $7.4 billion non-cash impairment. This is not a growth story on its own terms. It is a story about what it costs to try to become one.

Every other company covered in this newsletter this earnings season posted volume growth. Kraft Heinz did not. What makes this quarter worth reading closely is not the decline itself. It is the size of the bet management just placed to reverse it. That bet reveals how far behind the rest of packaged food has fallen.

The numbers behind the writedown

Reported net sales fell 1.4% to $6.262 billion, ahead of the $6.11 billion consensus estimate by $150 million. Organic net sales fell 1.3%. Price contributed a positive 1.3 percentage points. Volume and mix subtracted 2.6 points, concentrated in packaged meats and spoonables. An Easter timing shift added roughly 100 basis points of headwind, partly offset by an 80-basis-point benefit from inventory pull-forward.

GAAP operating income showed a loss of $6.431 billion, driven by $7.4 billion in non-cash impairments. That figure comprised $2.441 billion in goodwill writedowns and $4.911 billion in intangible asset adjustments. That is, management formally lowered its own long-term growth assumptions for legacy centre-store categories. Adjusted operating income fell 18.4% to $1.0 billion, a 350-basis-point margin contraction. Adjusted EPS reached $0.56, ahead of the $0.53 consensus estimate but down from $0.69 a year earlier.

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H1 2026: FX-neutral revenue up 6.1%. Days-adjusted volume up 2.2%. Revenue per unit case up just 0.4%. Almost the entire top line came from selling more, not charging more.

That is a genuinely unusual growth profile for a bottler coming out of three inflationary years. Most of the sector is still leaning on price and mix to do the heavy lifting. CCEP’s H1 2026 numbers show a business that chose volume as its primary growth lever, yet margins still expanded.

The headline numbers

Total reported revenue reached €10,724 million, up 4.4% reported and 6.1% FX-neutral. Operating profit grew 6.9% reported to €1,458 million, with comparable FX-neutral operating profit up 8.1% to €1,481 million. Diluted comparable EPS rose 10.6% to €2.20.

Group unit case volume hit 2,041 million cases, up 5.6% reported. Strip out six extra consumption days in the period and days-adjusted volume growth was 2.2%. The second quarter showed the pattern accelerating on a like-for-like basis. FX-neutral revenue rose 3.3%, days-adjusted volume rose 3.2%, and revenue per case stayed essentially flat at plus 0.1%.

Cost discipline is what converted that volume into margin. Cost of sales per unit case grew just 0.6% in H1, well under management’s roughly 1.5% full-year guidance. That gap is the entire operating profit story. Free cash flow reached €435 million in H1, tracking toward a full-year target of at least €1.7 billion. Capital returns continued alongside it: a €0.82 interim dividend and a €1 billion buyback programme, €593 million of which was already executed by 31 July.

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H1 2026: organic volume up 7.5% to 1,573.5 million unit cases. Organic revenue up 9.6%. Comparable EBIT margin up 60 basis points to 12.2%. All three numbers moving in the same direction is the story, not any single figure on its own.

The Volume-Value Matrix treats growing volume alongside growing value extraction as the rare, ideal quadrant. Almost no FMCG company lands there for a full half. Most either grow volume and dilute margin, or protect margin while volume stalls. Coca-Cola HBC’s H1 2026 numbers sit in the rare quadrant, and the reason why is a deliberate strategic reversal, not luck.

The numbers, and the reversal behind them

Group net sales revenue reached €6,229.4 million for the six months to 3 July 2026, up 10.8% reported and 9.6% organically. Organic volume expanded 7.5% to 1,573.5 million unit cases. Underlying second-quarter volume, adjusted for trading days, accelerated 5.8%, with strength across every operating segment.

The pricing side of the ledger tells the real story. Organic net sales revenue per unit case grew just 1.9%, up 3.1% on a reported basis to €3.96. For a company that spent the prior several years leaning on list-price increases to drive the top line, that is a deliberate deceleration. Management chose to let volume carry more of the growth algorithm this year. The company gained 80 basis points of value share in non-alcoholic ready-to-drink beverages and 40 basis points in Sparkling as a direct result.

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HY 2026: total volume up 0.8%. Net revenue up 5.7% organically. EBITDA margin holding at 35.6%. That gap between volume and revenue growth is not an accident. It is the entire operating model.

Most FMCG operators treat flat volume as a warning sign, something to fix before it becomes a trend. AB InBev has built a five-year turnaround on proving the opposite. A brewer can grow revenue and margins for years without needing to move much volume at all. HY 2026 is the cleanest demonstration yet.

The numbers behind the model

Second-quarter organic revenue grew 5.6% to $16,660 million. First-half organic revenue grew 5.7%, taking total six-month revenue to $31,927 million. Reported revenue was even stronger, up 11.0% in the quarter and 11.5% for the half, helped by favourable currency translation. None of that came from selling more beer. Net revenue per hectolitre rose 4.2% in the quarter and 4.3% across the half, the real engine behind the top line.

Total volumes grew just 0.9% in the quarter and 0.8% for the half. Beer volumes did slightly better, up 1.1% in the quarter and 1.2% for the half, reaching 280,412 thousand hectolitres. Non-beer volumes fell, down 1.1% in the quarter and 1.5% for the half, on soft beverage shifts in South America.

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H1 2026: total volume up 1.6% to 142.8 million hectolitres. Net revenue per hectolitre up 2.3%. Operating margin up 55 basis points. That combination is rare in brewing, and it is the whole story.

Most FMCG boards have accepted a trade-off as gospel: you either grow volume and erode margin, or you protect margin and watch volume shrink. Heineken’s H1 2026 results do not fit that model, and the reasons why matter more to an operator than the headline numbers do.

Growth without a volume-value trade-off

Start with the group numbers. Total revenue before exceptionals and amortisation (BEIA) reached €17,552 million, up 2.4% organically from €16,910 million a year earlier. Net revenue BEIA came in at €14,834 million, up 2.7% organically. On an IFRS basis, net revenue rose 4.7% to €14,841 million, helped by portfolio changes and currency.

Operating profit BEIA grew 6.7% organically to €2,170 million. That is faster than revenue growth, which is the detail that separates a real margin story from a lucky one. Operating margin BEIA expanded 55 basis points to 14.6%. IFRS operating profit jumped 48.4% to €2,126 million, largely because of lower write-downs and lower amortisation rather than a one-off trading spike. Diluted EPS BEIA rose 11.6% at constant currency to €2.29, up from €2.08.

None of this required Heineken to lean on price the way the sector did in 2022 and 2023. Net revenue per hectolitre rose 2.3% organically. Total beer volume grew 1.6% to 142.8 million hectolitres, and the growth accelerated through the second quarter. That is the combination boards should be watching: price-mix discipline sitting alongside actual volume growth, not instead of it.

Cash generation backed up the profit and loss story. Free operating cash flow was €1,381 million, a 97% cash conversion ratio. Net debt to EBITDA BEIA sits at 2.6x, just above the group’s own 2.5x long-term target. Under the Leverage Threshold framework, that is the safe zone with a small margin of discipline still required. It is not a company borrowing its way to growth.

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Clorox reported a 13% organic sales decline for the fourth quarter of fiscal 2026.

Read that number on its own and it looks like a business in genuine trouble. It is not, mostly. A year earlier, retailers built inventory ahead of Clorox’s ERP cutover, and that surge inflated the prior-year quarter. This year’s decline is largely the mirror image of that surge unwinding. CEO Linda Rendle called the results “in line with our expectations,” and on the group number, she has a case.

The number that should worry an operator sits one level down, inside a segment the ERP story does not explain.

The Comparison Effect Is Real. It Is Also a Convenient Place to Stop Looking

The scale of the distortion is not in dispute. Full-year organic sales fell 8%, and management attributes 7.5 points of that decline directly to the unwind of prior-year ERP-driven shipments. That single base effect cut roughly $0.90 off adjusted EPS for the year. Reported net sales fell 5% to $6.72 billion. Adjusted EPS fell 42% to $5.53. Gross margin contracted 520 basis points to 41.3% in the quarter, hit by the same baseline comparison plus GOJO Industries integration costs.

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Kimberly-Clark’s management just told the market its industry will grow half a point slower than it thought three months ago.

That is the number worth sitting with before any of the quarter’s other detail. Not the earnings beat. Not the fire at the Los Angeles distribution centre. Not the diaper allegations that spread across Chinese social media. Management cut its weighted average category growth assumption from 2.5% to 2.0%. That is a statement about the entire essential paper and hygiene sector. It came from the one company with the clearest line of sight into it.

Everything else in the release reads differently once you hold that number first.

The Beat Is Real. The Beat Is Also the Problem

Kimberly-Clark’s headline numbers were genuinely strong on the metric that matters most to a margin-focused board. Adjusted operating profit grew 6.2% to $757 million. Adjusted EPS from continuing operations rose 10.4%, and adjusted EPS attributable to the company hit $2.12, beating consensus of $2.01. Reported gross margin expanded 330 basis points to 38.3%. Adjusted gross margin rose 190 basis points to 38.8%.

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A portfolio review I sat in last year had forty-one SKUs on the table. Four of them mattered.

Not four out of forty-one because the other thirty-seven were bad products. Most of them were perfectly fine. They simply were not doing anything for the business that the four winners were not already doing better. And yet nobody in that room was proposing to cut them.

I want to explain why that happens almost everywhere, and what to do about it.

Last week I wrote about the reaction trap, the habit of mistaking a fast response for a real decision. This is that same habit’s slower cousin. A guilt-driven portfolio is not built in a single reactive afternoon. It is built one reasonable-sounding deferral at a time, over years, until nobody in the room remembers why any of it is still there.

The hoarder’s shelf

Walk into a hoarder’s house and you will not find chaos. You will find order. Everything has a place, a reason, a story attached to it. The newspaper from 2014 is there because it might be useful someday. The broken lamp is there because it was a gift. Nothing in the house is random. Every object survived a decision, and every decision felt reasonable at the time it was made.

Most FMCG portfolios work the same way.

I call this the guilt portfolio. It is what accumulates when a company stops asking whether a SKU earns its shelf space and starts asking whether killing it would upset someone. The person who launched it. The regional team who still hits their number partly because of it. The founder who has an emotional attachment to the flavour nobody buys anymore. None of these are business reasons. All of them are human ones, and human reasons are exactly what keep dead weight alive in a portfolio for years past its usefulness.

In the Execution Gravity Model, this sits under Force 6, Portfolio Overload. The white paper’s own definition is precise. Brands, SKUs, and innovation pipelines exceed what the commercial organisation can meaningfully carry, because sales representative time and distributor attention are both finite. One line from the research says it better than I could. If a sales rep has four hundred SKUs to sell, they sell none of them. They sell what is easiest.

That finding is about capacity. What I want to add here is the mechanism sitting underneath the capacity problem. Capacity alone does not explain why the overload persists once it has been identified. Overload is rarely a launch problem. It is almost always a subtraction problem, and subtraction is the single hardest discipline in commercial management. Subtraction requires someone to say out loud that a decision made in good faith three years ago was wrong.

That sentence is harder to say than it looks. Killing a SKU is never just a spreadsheet exercise. It is an admission. Someone championed that product. Someone built a career milestone around its launch. Someone in the room today may still be that person. So the portfolio grows a defensive shell around its own history, and every new review inherits the accumulated guilt of every review before it.

How the guilt accumulates

The mechanism is almost never dramatic. It is death by a thousand reasonable exceptions.

A SKU underperforms in its first year. Nobody kills it, because launches take time to mature and the team argues for patience. Reasonable, on its own. The SKU underperforms in year two. Nobody kills it, because a promotional calendar is already booked around it and cancelling mid-year looks worse than letting it run. Also reasonable, on its own. By year three the SKU has become part of the furniture. Killing it now would mean admitting three consecutive years of a wrong call, not one. The size of the admission grows every year the decision gets deferred, which is exactly why it keeps getting deferred.

Compare this to how the same company handles a genuinely dead product line, one with an obvious, undebatable failure. Those get cut quickly, almost gladly, because nobody’s judgement is really on trial. The failure was so visible that killing it reads as competence, not confession. It is not the worst performers that clog a portfolio. It is the ambiguous middle. The SKUs doing just well enough that killing them requires a judgement call, and judgement calls are where guilt hides.

There is a second mechanism working alongside the first, and it is structural rather than emotional. Most reporting systems measure a SKU against its own history, not against what else the shelf space could be earning. A product growing three per cent a year looks healthy on its own trend line. It only looks like a problem once you ask a different question. What would a stronger SKU generate from the same distribution slot, the same trade budget, the same limited shopper attention. Almost no monthly report asks that question. It requires comparing what exists against what could exist instead, and most systems are built to track only what exists.

This is worth sitting with for a moment, because it explains why smart, well-run companies still end up with bloated portfolios. Nobody is being lazy. Nobody is failing to read their own reports. The reports themselves are structured to make a mediocre SKU look acceptable, because they measure the wrong comparison. A portfolio review built entirely on individual SKU trend lines will pass nearly everything. Trend lines answer whether something is going up or down. They never answer whether it deserves the space it occupies.

You are reading this because you are the person in the room who asks the second question. Everyone else is already satisfied with the first.

That is not a comfortable position, and it should not be. It is also the only position from which a portfolio actually gets fixed.

The four-question test

The white paper’s own prescription for Force 6 is Mandatory Subtraction. For every SKU added, one must be removed, with a hard cap on active SKU count per representative. That rule is correct and it is the one to enforce at the point of launch. What it does not do on its own is tell a leadership team which existing SKU to remove. That is the narrower problem the four questions below are built to answer, the one Mandatory Subtraction assumes has already been solved.

Here is a way to separate a strategic portfolio decision from a guilt-driven one, run against any SKU under review.

First, does this SKU do something none of the others do. Not something slightly different. Something genuinely distinct in occasion, format, or customer it reaches. If three other products in the range already cover the same job, this one is not diversifying the portfolio. It is diluting it.

Second, if this SKU launched today for the first time, would it get approved on current numbers. This question strips out sunk cost entirely. A product’s history is irrelevant to whether it deserves future investment. If the honest answer is no, the only thing keeping it alive is the fact that it already exists, which is not a strategic reason. It is inertia wearing a business case.

Third, what specifically would the shelf space, trade budget, and marketing attention produce if redirected to the strongest SKU in the range. If nobody in the room can answer this with a number, the review has not actually weighed the SKU against its real alternative. It has only asked whether the SKU is bad in isolation, which is the wrong question, for the reasons above.

Fourth, whose discomfort is actually driving the decision to keep this SKU alive. This is the uncomfortable one, and it is the one that matters most. If the honest answer names a person rather than a customer, you have found a guilt portfolio entry. The SKU should be treated accordingly, regardless of how the first three answers came out.

Run all forty-one SKUs from a real portfolio through these four questions. Typically, as I did, you will find that four or five earn a clean pass. The rest survive on some combination of habit, politics, and a reluctance to relitigate old decisions. None of that is a strategic reason to keep them.

What this actually costs

The cost of the guilt portfolio is not the SKUs themselves. It is everything they are quietly taxing.

Every underperforming product still needs forecasting. It still needs a line in the trade plan, shelf negotiation, and someone’s attention in every monthly review. None of this shows up as a single dramatic cost. It shows up as friction, spread thinly across the organisation, on every SKU that does not deserve the attention it is receiving. A commercial team spending twenty per cent of its planning time on products generating two per cent of profit is not a hypothetical. It is close to the median in most portfolios I have reviewed.

There is also an opportunity cost that rarely gets named in the room, because it requires imagining something that does not yet exist. Every SKU occupying a shelf slot for sentimental reasons is a slot not available to a genuinely new idea. Innovation budgets get cut before legacy SKUs do, almost everywhere. Legacy SKUs have defenders. New ideas do not yet have a track record to defend them with. A guilt portfolio does not just carry dead weight. It actively starves the part of the business that would replace the dead weight with something better.

I saw this play out clearly in a mid-sized snacking business a couple of years ago. Nineteen SKUs, three of which generated over seventy per cent of profit. The other sixteen were not disasters individually. Each one had a defensible-sounding reason to stay. A loyal but small customer base, a listing with a retailer nobody wanted to jeopardise, a flavour the original founder still personally loved. None of those sixteen reasons were about the customer. All sixteen SKUs survived the annual review regardless, for a third consecutive year. Meanwhile the innovation pipeline for genuinely new formats sat frozen for lack of budget. The company was not short of money. It was short of the willingness to admit that money was already spoken for, by products that had stopped earning it.

None of this requires a dramatic culling exercise, and I would actively discourage one. A portfolio purged all at once in a single meeting usually reflects something else entirely. It reflects a new leader’s need to be seen making bold moves, not a considered read of what the four questions above would actually produce. The discipline that works is smaller and more boring. Run the four questions on a rolling basis, a handful of SKUs every quarter. Let the guilty ones surface on their own schedule, rather than forcing a confrontation everyone will resent.

The Execution Gravity Model exists to help operators see forces like this one before they calcify into permanent features of the business.

H1 2026: TMICC organic sales up 4.7%. Nestlé up 3.6%. EBIT margin up 50 basis points. EBITDA margin down 30.

The Magnum Ice Cream Company’s Adjusted EBITDA margin fell 30 basis points in the first half of 2026. Nestlé and General Mills would sign up for that number today.

TMICC spun out of Unilever fourteen months ago as a pure-play ice cream business. Every large diversified peer still holding a piece of this category is stepping back from running it directly. Nestlé has agreed to fold what remains of its own ice cream operations into Froneri, the joint venture it already half owns. General Mills just booked a $1.75 billion impairment and is selling Häagen-Dazs’ China retail shops. Unilever, having already demerged ice cream into TMICC, where it still holds a minority stake, is now separating its Foods division too. That deal runs through McCormick & Company.

That divergence is the actual story here. While the conglomerates that used to own this category treat it as a distraction, the standalone entity is growing faster than most of them. It is also expanding the one margin line that measures real operating discipline.

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Q2 2026: organic sales grew 2.4%, exactly matching Q2 2025. Net pricing fell from 3.2% to 1.6%. Organic volume rose from -0.2% to +0.8%. Same headline number, different company underneath it.

Colgate-Palmolive’s organic sales grew 2.4% in Q2 2026. They also grew 2.4% in Q2 2025.

That is not a typo, and it is not a coincidence worth skipping past. The identical number is hiding the most useful story in this result. What changed is everything sitting underneath it.

The Number That Didn’t Move, and the Number Underneath It

Net pricing contributed 1.6 percentage points to that 2.4% figure this quarter. A year ago, pricing contributed 3.2 points. Organic volume moved the other way. It was -0.2% in Q2 2025. It is +0.8% now, the third consecutive quarter of sequential global volume improvement.

Run the exchange rate. Colgate gave back roughly 1.6 points of price growth to buy back roughly 1.0 point of volume growth. Call this the volume handback: a company deliberately trading pricing power it built during the inflationary years for the volume it lost in the process. The trade is not free. It is also not obviously a good deal at face value, since price fell further than volume rose. What it buys is a growth mix that survives a slowdown in pricing power far better than a mix built entirely on price would.

Reported net sales reached $5,361 million, up 4.9% from $5,110 million a year earlier. Look at what is actually inside that 4.9%. Foreign exchange contributed 2.4 points, a full swing from a currency headwind a year ago. Roughly half of the headline growth number is currency, not commercial performance. Reported volume came in at 0.9%, helped by a 0.1 point contribution from the Prime100 acquisition. Organic sales growth itself included a planned 0.4-point drag from exiting low-margin private-label pet food manufacturing.

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H1 2026: gross margin up 140bps CER to 66.5%, against a 50 to 80bps annual target. Organic volume/mix growth: 0.5%. Reckitt and Unilever both grew volume faster.

Haleon’s gross margin rose 140 basis points in H1 2026, at constant exchange rates. Its own annual target was 50 to 80 basis points.

Beating a cost target by roughly double sounds like unambiguous good news. On its own, it rarely is. The question that actually matters is where that margin came from, and where it went once Haleon had it.

The Margin Beat Its Own Target. The Question Is What Funded It.

Group revenue reached £5.6 billion in H1 2026, up 2.6% organically. Price did most of the work, contributing 2.1 percentage points. Volume and mix added only 0.5 points. The quarterly trend improved. Organic growth accelerated from 2.2% in Q1 to 3.1% in Q2, with the mix rebalancing to 1.7% price and 1.4% volume and mix.

Adjusted operating profit reached £1,364 million, up 8.2% at constant currency and 9.7% at actual rates. Adjusted operating margin expanded 120 basis points at constant currency to 24.3%, with a further 40 basis point currency tailwind at actual rates. Reported operating profit told a different story: it fell 2.6% to £1,172 million, dragged down by restructuring charges tied to a new corporate operating model.

That gap between the adjusted and reported numbers is the first thing to sit with. The adjusted figures are the ones management wants read out loud. The reported figures are the ones that actually landed on the P&L.

Free cash flow held up at £769 million, up £35 million year on year, with leverage steady at 2.5x net debt to adjusted EBITDA. Capital allocation went two places. Haleon completed £457 million of a £500 million share buyback programme. It also raised the interim dividend 9% to 2.4p per share. Call this the extraction gap. It is the widening distance between two speeds. One is how efficiently a company pulls margin out of its existing base. The other is how fast it grows that base in the first place. Haleon is excellent at the first half of that equation. The second half grew 0.5% in H1.

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