Unilever is reducing its food exposure and focusing on beauty, personal care and home products to improve growth, returns and its valuation relative to more focused consumer goods rivals.
| Photo Credit:
Dado Ruvic
Unilever is betting that shedding
food assets and focusing on beauty, personal care and home
products will close a valuation gap with more focused rivals.
The challenge is convincing investors that a simpler company can
deliver higher returns.
The maker of Dove soap, Axe deodorant and Cif cleaning
products trades at 11.5 times enterprise value to core earnings,
according to LSEG data. That compares with 14.8 for Procter &
Gamble, 17.5 for L’Oreal and 22.7 for Coca-Cola.
Those multiples suggest investors place a premium on more
focused consumer goods companies.
But investors have two main concerns.
Unilever’s deal in March to merge its food business
with U.S. spice maker McCormick will leave the British group
with an almost 10% stake in the combined company, and its
shareholders with a roughly 55% stake.
At the same time, the transaction reduces Unilever’s
exposure to a relatively high-margin business, increasing
pressure on management to show that faster-growing beauty,
personal care and home products can make up the difference.
“Until you show me the evidence that you’re turning this
around, you’re sitting on a very low multiple,” said Dan
Hanbury, a portfolio manager at Ninety One, a major investor in
Colgate-Palmolive, Unilever and L’Oreal.
The market is wary of “false dawns” from corporate
turnarounds, he added, saying Unilever probably needed three or
four quarters of strong volume growth to win over doubters.
THE P&G EXAMPLE
Big industrial companies from General Electric to Siemens
have spent years simplifying their structures in an effort to
eliminate what investors call a conglomerate discount, a penalty
applied to companies whose complexity is seen as weighing on
efficiency and growth.
That thinking has increasingly spread to consumer goods
companies. Where diversification was once seen as a strength
that could cushion changes in consumer tastes, investors now
increasingly favour category leaders that can focus investment,
innovation and marketing on a narrower set of products.
Under CEO Fernando Fernandez, Unilever has accelerated its
retreat from food. The company spun off its ice cream business
and in March struck a roughly $65 billion deal to combine its
food division with McCormick.
The issue is not that food is unprofitable. The business has
historically generated attractive margins, but growth has lagged
Unilever’s beauty and personal care operations.
“Being focused on a single category allows you to be more
cost effective and more innovative,” said Akeel Sachak, global
head of consumer at Rothschild & Co.
Investors often point to Procter & Gamble as a template. The
Tide detergent maker exited food and streamlined its brand
portfolio, subsequently delivering stronger growth and earning a
valuation premium for much of the following decade.
“P&G pulled off the restructuring, drove higher growth and
commanded a relatively higher premium for probably 10 years,”
Hanbury said.
IMPROVING RESULTS
Investors and analysts say the focus for Unilever has now
switched from portfolio reshuffling to execution.
“If (Unilever) continues to execute, Unilever will continue
to see a degree of re-rating … and then hopefully grow from
there,” said Will James, portfolio manager at Guinness Global
Investors, which holds shares in Unilever and L’Oreal.
Unilever has reported improving results in recent quarters,
and in July said sales volumes had reached their highest level
in more than a decade.
Yet despite the operational improvement, some Unilever
investors are concerned about their continued exposure to the
slow-growing food category via their stake in the company
resulting from the McCormick merger, Barclays analyst Warren
Ackerman said.
Unilever declined to comment.
CEO Fernando Fernandez told an industry event in June: “I
believe that every quarter that goes by, and we deliver the
numbers that we have been delivering, and we get closer to the
closing of a transaction of McCormick, the value of Unilever
will be shown.”
Published on August 26, 2026
