Nestle's share-price pickup on Thursday looks like a triumph of hope over reality.
The world's biggest food company reported its slowest first-half sales growth since 2009 as it struggled to raise prices. But the stock rose as much as 1.3 percent.
The reason? Investors are betting that the tougher conditions will license incoming chief executive Ulf Mark Schneider to make tough changes. His many years leading Fresenius, Europe's biggest publicly traded health-care provider, fits with Nestle's increasing focus on health and wellness.
And he should start by getting rid of U.S. frozen food, where growth has been persistently low, and some of the confectionary, where KitKat's the only star seller.
Neither of those fit with Nestle's shift to health. And confectionary is in the line of fire from sugar taxes.
Nestle is already putting its non-U.S. ice cream business into a joint venture with R&R, but the U.S. ice-cream assets still need to be dealt with, as do other items such as prepared meals.
Schneider's background also suggests he'll focus on boosting Nestle's nutrition and health business, where organic growth slowed in the second quarter.
The prospects of a restructuring have driven Nestle's price-to-earnings ratio higher. In fact, it's now at a slight premium to Unilever. But that is too much too soon, and Schneider still actually has to take the decisions needed to improve performance.
There are indeed parallels with Unilever. It has a sluggish business in spreads such as margarine, where Gadfly has argued that it should cut the fat. Nevertheless, its focus on faster-growing categories such as premium personal care and drive to innovate make it a better bet. Nestle's leading position looks undeserved at this point.
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