Sunday, March 21, 2021

An International Equity holding: Unilever ADR (UL, $55.13): “Stagnant Growth Makes It Hard to Continue to be a Believer in Unilever” by: Ciara Jones, AIM Student at Marquette University

 Unilever ADR (UL, $55.13): “Stagnant Growth Makes It Hard to Continue to be a Believer in Unilever”

By: Ciara Jones, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses only my own opinions. I am not receiving compensation for this article, and I have no business relationship with any company whose stock is mentioned in this article.


• Unilever ADR (UL) is a multinational consumer goods company that operates with three business segments including Beauty & Personal Care (42% of Rev), Foods & Refreshment (37% of Rev), and Home Care (21% of Rev). Unilever’s products are available in over 190 countries, with their top consumers being from the United States, Mainland China, and Japan. Unilever was founded in 1930 and is headquartered in London. 

• The effect of the pandemic on Unilever’s business has been significant. Unilever’s 2020 sales growth was 1.9%, compared to 2.9% in 2019 and 3.2% in 2018. Additionally, their operating margin was down 60bps at 18.5%. 

• Unilever’s sales performance in 2020 relative to their American competitor, Procter & Gamble signals a potential loss of their competitive edge and market share. 

• A press statement on March 9th revealed Unilever would remove the world ‘Normal’ from their beauty products. 

• Despite a retail resurgence in the horizon, Unilever’s current share price struggle indicates that their business performance will not rebound similar to other UK and US retail brands.

Key points: 

As a company headquartered in the UK, Unilever has witnessed the halt in consumer spending due to consistent lockdowns. Despite Unilever’s wide range of products, their business segment diversity has not helped to lessen the Covid-19 impact. Evidence of their struggle was shown in Unilever’s $2.0 billion USD food service industry, which was hit by sudden and very dramatic falls in sales, in some cases by as much as 70%. Additionally, the ‘stay at home’ initiative led to declines in their largest division, Beauty & Personal Care where turnover declined by 3.4% including an unfavorable currency impact of 5.4%. 2020 sales growth for the Beauty & Personal Care segment was 1.2%, compared to 2.6% in 2019. Even though Unilever experienced sales declines in their deodorants and hair care products, surges in consumer demand of hygiene and skin cleansing should have helped with the segment’s overall performance. 

Although the pandemic has resulted in significant losses for companies around the world, Unilever’s stagnant growth compared to their competitors reveals that the pandemic may not be the only factor of their poor performance. In their 2020 Annual Report, P&G revealed strong results that met or exceeded their financial goals for the year with 6% organic sales growth and 13% core earnings per share growth. Similarly, Unilever’s competitor Nestle, another holding in the AIM International Equity Fund, reported a 2020 organic growth of 3.6% and underlying earnings per share increase of 3.5%. 

Unilever has made national and international headlines in recent days after they released a statement on March 9th saying they would eliminate the world ‘Normal’ from all of their beauty and personal care brands’ packaging and advertising. As the owner of Dove, Vaseline, Lifebuoy, Sunsilk and Axe, the company intends to “champion a new era of beauty which is equitable and inclusive, as well as sustainable for the planet”. Supporters of a more equitable beauty industry reacted positively to this press release, while critics of “Cancel Culture” argued removing ‘Normal’ will alienate a large amount of their consumer base. 

What has the stock done lately?

From mid-February to the end of February, Unilever’s share price fell almost 12%. After announcing a sales growth of 1.9% in 2020 with a rise of 3.5% in underlying sales for the fourth quarter, Unilever’s share price fell 4.4%. Unilever’s inability to meet their annual sales forecasts and their announcement of a $2.3 Billion USD restructuring plan, made investors skeptical of future performance.

Past Year Performance: 

Over the past 52 weeks, Unilever’s price range was $44.06 to $63.89. The stock price fell last March 2020 to the lowest of its 52-week range and reached its peak in October 2020. Over the course of the past year, Morningstar Investment Services reduced their positions in Unilever by 3.8% and Zacks Investment Research downgraded Unilever from “hold” to “sell” on February 10th

Source: FactSet

My Takeaway:

Unilever was added to the International AIM Equity Fund in April 2020 at a price of $51.22, with an initial price target of $69.15. Since Unilever was pitched, their share price has yet to demonstrate consistent growth. Although a retail resurgence post pandemic will help Unilever’s Beauty & Personal Care and Foods & Refreshment segments recover, Unilever’s current performance relative to their competitors highlights a diminishing competitive edge. Additionally, by comparing Unilever’s price performance with SPDR Solactive United Kingdom ETF (ZGBR), which includes large and mid-cap companies in the UK market, it shows that Unilever’s price growth of 13.3% is struggling in comparison to the other companies in the UK as the ETF currently is performing at 38.62%. Given their past year performance and poor growth prospects in the retail industry, I believe that Unilever is no longer a valuable position to hold. 

Source: FactSet