Unilever: appetite suppressant
Flagging sales suggest the consumer goods group might need to invest more in the business
High expectations generate resentment later, warn psychologists. Incoming bosses therefore lower the hopes of investors while predecessors can still bear implicit blame. But Alan Jope waived the opportunity for a “reset” of goals when he took over at Unilever in January. That now looks a mistake. On Tuesday, the Anglo-Dutch company said it would miss its full-year revenue growth targets. The share price fell more than 6 per cent.
Not a great start for Mr Jope, a company lifer. But Unilever insists difficult trading conditions are to blame, particularly in south Asia and west Africa. Certainly, it is hard to make headway amid slowdowns such as India’s, where economic growth has halved since the start of 2018.
That is not the case in the US, where Unilever is struggling to combat a resurgent Procter & Gamble. And despite some recent signs of improvement, it has problems in the ice cream market. Unilever is the global leader in the sector but things could get tougher still. Froneri, a private UK business, will become a closer challenger after buying Nestlé’s ice cream brands, including Häagen-Dazs, last week.
Rival Nestlé has been growing faster than Unilever this year. The categories where it competes, such as pet food and coffee, are better performers. That helps explain Nestlé’s premium rating. It trades on a price of 22 times forward earnings, compared with Unilever’s 20 times. Its shares are up 32 per cent this year, nearly twice the increase for Unilever.
Unilever could try to reshape its portfolio, jettisoning slow-growing brands. But M&A is no panacea. Despite buying a number of fashionable “insurgent” brands in recent years, Unilever only generated only about 0.5 percentage points of growth from its acquisitions and disposals in the first half year.
Mr Jope might be better off re-evaluating Unilever’s margin targets, established after the “near death” experience of Kraft Heinz’s failed hostile bid in 2017. Unilever set itself an ambitious cost-cutting programme, adopting some of the “zero-based budgeting” techniques employed by its foiled predator. It believes it can keep up the pace. Cost savings will go on giving it the scope to reinvest in its brands while boosting profitability. But flagging sales suggest it might need to invest more in the business. If they continue to disappoint, it should be prepared to think again.