Nestlé Faces Legal Setback in Brazilian Coffee Trademark Dispute

Nestle CH0038863350

A Brazilian court has ordered Nestlé to immediately cease using its "Coffee+" brand name in the country, handing a victory to local coffee producer Coffee++ in a trademark infringement case. This legal defeat arrives as the Swiss food and beverage conglomerate contends with significant margin pressure from elevated commodity costs.

The injunction, issued by a court in Minas Gerais, mandates the removal of all Coffee+ branded products from both physical and online retail shelves. Judge Claudia Helena Batista ruled in favor of Coffee++, citing a high risk of consumer confusion between the two brands. Failure to comply will result in financial penalties for Nestlé.

This ruling represents a reversal for Nestlé, which had itself filed a lawsuit on September 24 to challenge Coffee++'s trademark rights in Brazil. The local producer has held the rights since 2020 and has registered the trademark in more than 30 countries. According to Coffee++ CEO Leonardo Montesanto, the company is pursuing international expansion, with plans to exhibit at trade fairs in Dubai and Paris by 2026.

Broader Operational Headwinds

The legal challenge compounds existing operational difficulties for Nestlé. The company's margins are being squeezed by soaring prices for key inputs, particularly coffee and cocoa. In response, management has initiated aggressive cost-cutting programs. Its medium-term objective is to achieve an operating margin of at least 17%. While some market analysts note early signs of easing in commodity prices, the near-term pressure persists.

Nestlé's financial metrics show a recent weakening in free-cash-flow conversion, though dividend payments remain fully covered. The company's net debt-to-EBITDA ratio has risen, partly due to previous share buyback programs. Although these buybacks have now cooled, debt levels remain within industry standards. Reducing leverage is expected to become a priority in the coming quarters.

Market Performance

Nestlé shares are currently trading at 84.51 euros. This price level places the stock approximately 11 percent above its 52-week low. For a globally diversified entity like Nestlé, the Brazilian legal setback is a contained, albeit frustrating, development. Its impact is likely to be partially offset by the ongoing corporate restructuring and the anticipated moderation in raw material costs.