Adds detail on ice cream sale in paragraphs 1-3, 5-6 CEO quote in paragraph 4, investor quote in paragraph 7

By Alexander Marrow and Oliver Hirt

LONDON, Feb 19 (Reuters) - Nestle NESN.S said on Thursday it was in talks to sell its remaining in-house ice cream business as part of new CEO Philipp Navratil's drive to streamline the sprawling Swiss consumer food giant.

Nestle had already handed the reins of its European and U.S. ice cream units to Haagen-Dazs owner Froneri, a joint venture it established with European buyout firm PAI Partners in 2016.

It is now in advanced talks to sell ice cream businesses with around 1 billion Swiss francs ($1.3 billion) in annual sales in Canada, Chile, Peru, Malaysia and Thailand to Froneri, including brands KitKat ice cream and Coffee Crisp.

"There are times when we decide that focusing means exiting businesses," Navratil said, adding that the ice cream business is "strong, but small, and it's a distraction for us".

The announcement follows Unilever's ULVR.L spinoff of rival Magnum Ice Cream MIXXT.AS last year.

Nestle said it has no plans to exit the Froneri joint venture, valued at some 15 billion euros ($18 billion) in October, including debt, and in which the Swiss group owns a 50% stake.

SHEDDING ICE CREAM, WATER, VITAMIN ASSETS

The maker of Maggi stock cubes and Nescafe coffee plans to focus on its coffee, petcare, nutrition and food and snacks units. It reported better than expected fourth-quarter sales growth.

"The company is giving thought to the right things," said Kai Lehmann, senior research analyst at Nestle investor Flossbach von Storch.

Navratil, who announced plans to cut 16,000 jobs in October, has been pushing to raise volume growth while battling the negative impacts from U.S. import tariffs and foreign exchange, as well as consumers with less purchasing power.

Nestle's strategic review of underperforming vitamins and supplement brands has concluded and it is engaging potential buyers. It also expects to deconsolidate its waters business from 2027.

Analysts have suggested that U.S. frozen foods could be another division for the chop, but Navratil said that remained part of the portfolio as a profitable, cash-generative asset.

CEO SEES NO LONG-TERM REPUTATIONAL ISSUE FROM RECALLS

Navratil's efforts to overhaul the packaged goods producer since taking over in September have been overshadowed by the biggest infant formula recall in Nestle's recent history.

The CEO said the company had acted swiftly and transparently to earn the trust of regulators and consumers.

"There might be some impact from the recall, but then I think there is not a long-term reputational issue that we're facing," he said.

Nestle sees 2026 full-year organic sales growth in the range of 3-4%. It forecast that its annual underlying trading operating profit margin would rise from 16.1% in 2025, and expects real internal growth $(RIG)$ - or sales volumes growth - to come in above last year's 0.8%.

The company's shares were up 2.8% by 1312 GMT.

NET DEBT DOWN

Net debt fell to 51.4 billion francs at end-December from 60 billion six months earlier, thanks in part to strong cash flow generation. The board will propose a 5 centime increase in the dividend to 3.10 francs per share.

"Strong free cash flow and slashed net debt establish a solid foundation for a reset," said Vontobel analysts.

Organic sales, which exclude the impact of currency movements and acquisitions, rose 4% in the final three months of the year, above expectations for 3.4% growth.

That was led by price increases of 2.8%, roughly in line with analyst expectations, and RIG of 1.3%, outperforming expectations for a 0.9% increase.

($1 = 0.8473 euros)

($1 = 0.7733 Swiss francs)

(Reporting by Alexander Marrow and Oliver Hirt, additional reporting by Danny Callaghan, Bartosz Dabrowski and Maria RugamerEditing by Lisa Jucca, Elaine Hardcastle, Kirsten Donovan )

((alexander.marrow@thomsonreuters.com; +447393253522))