Unilever Pins Growth Hopes on Plant-Based Foods and Beauty. Why the Stock Is Falling.
Unilever reported underlying sales growth for the fourth quarter, boosted by strong demand in emerging markets.
Getty Images
Unilever restored its long-term sales growth target after a recovery in China and India helped the maker of Ben & Jerry’s ice cream and Dove soap increase underlying sales by 3.5% in the final three months of 2020.
However, the company’s full-year earnings disappointed investors, who sent down the stock down almost 5% on Thursday.
The back story. Consumer-goods companies like Unilever, Nestlé, and Kraft Heinz, have benefited from Covid-19 pandemic lockdowns, with the FTSE 100-listed company briefly becoming the most valuable business in the U.K.’s index of leading stocks in July 2020, as consumers stocked up on ice cream and hygiene products. But the group’s food service business, which serves restaurants and bars, has suffered from lengthy closures.
Read:Unilever Beats Sales Targets but Warning Over Unpredictable Future Weighs on Shares
In November 2020, Unilever abandoned its Anglo-Dutch dual-headed structure in favor of a single corporate entity based in London, which Chief Executive Alan Jope said will make it easier for the group to carry out more acquisitions and disposals to help meet its growth targets.
The group announced plans last year to separate its tea business, which includes the PG Tips and Lipton brands, and work to achieve this is ongoing.
What’s new. On Thursday, Unilever restored its underlying sales growth back to 3% to 5%, as it set out plans to focus on high-growth areas, including plant-based foods, as part of a wider strategy to boost the company’s profits and attract younger customers who have abandoned traditional brands in favor of their niche rivals.
Shares in Unilever fell 4.27% in London, after the company posted a 5.8% decline in underlying operating profits to €9.4 billion ($11.2 billion) for the year to December as it was impacted by currency fluctuations.
Turnover over the year fell by 2.4% to €50.7 billion. Meanwhile, underlying sales in 2020 grew by 1.9%, benefiting from a 3.5% growth in the fourth quarter, buoyed by a recovery in China and India, its strongest performing markets.
“While volatility and unpredictably will continue throughout 2021, we begin the year in good shape and are confident in our ability to adapt to a rapidly changing environment,” Jope said in a statement accompanying full-year results.
Strong demand for the group’s hygiene and cleansing products during the pandemic continued to drive growth during the period, with sales of Lifebuoy soap rising more than 50%, while Domestos bleach sales increased more than 25%, after the brand was launched in China and introduced spray and wipe formats.
New products like Unilever’s fake meat brand The Vegetarian Butcher saw sales rise by more than 70%.
Read:Beyond Meat Stock Is Falling Because It Has a Near-Impossible Choice
This growth helped offset falling sales in weaker parts of the business, such as beauty and personal care, which grew 1.2% on an underlying basis with profits flat.
Looking ahead. “Unilever’s results are a little disappointing in the context of strong results reported by other consumer staples companies in recent days,” wrote analysts at RBC Capital, in a research note to clients.
Ongoing restructuring to position the group further toward digital commerce will hold back earnings in the near term, said Steve Clayton, fund manager at Hargreaves Lansdown, perhaps explaining the market’s lack of enthusiasm for the numbers this morning.
Still, there is a sense that things are improving. The company has laid out growth plans that include a major focus on the U.S., India and China, and making more of the e-commerce channel to position itself for the post-pandemic environment. “Restructuring costs of around €2 billion for the next two years may be hard for some Unilever fans to stomach, said AJ Bell investment director Russ Mould, noting that the company is also targeting €2 billion annual cost savings.
Unilever’s ability to keep thriving despite operating in a highly competitive marketplace is fundamentally down to the strength of its brands, distribution power and marketing expertise, Mould said, adding that achieving a target of underlying sales progression of 3% to 5% a year “will take hard work and the shape of the business is likely to keep changing as it focuses on more prosperous areas.” That could even see Jope strike a transformational deal in the future.
