Unilever has finally cleared the U-bend. The sprawling Anglo-Dutch consumer goods group has been a disappointment to shareholders for years. At one stage, critics said only a leveraged buyout could save it.
But boss Patrick Cescau has proved them wrong. Profitability is rising—and the once-drifting shares could follow.
Cescau always maintained that Unilever, whose brands run from Ben & Jerry’s ice cream to Dove soap, didn’t need to be broken up. He has focused instead on firing superfluous managers, dissolving fiefdoms and hiring outsiders like the new finance director, formerly of rival General Mills. That has won investors over. In the last year, Unilever’s price-to-earnings multiple has expanded by a fifth.
In performance, which is what really counts, Cescau is making a difference, too. Sales growth in the last half beat the company’s own 5% target. Margins have expanded for the second quarter in a row, and Cescau has revealed €1billion of extra cost cuts.
It’s too early still to call it a recovery—but it’s a welcome change after two years of the company’s earnings going backwards.
More encouraging, Cescau is promising to sell the less exciting bits of the Unilever empire, starting with the US laundry products business. It’s only 5% of group sales, but it raises the hope that Cescau will cut deeper next time. Unilever’s portfolio, which includes food, cosmetics and cleaning products, is so diverse that the company is little more than a proxy for global GDP.
Unilever still has a long way to go. Growth of 5% still lags its peers such as Reckitt Benckiser, which last week reported sales growth of more than 10%, or Danone, which posted 7.3%.
But if Cescau can keep it up, there’s no reason why Unilever’s shares shouldn’t trade higher. A multiple in line with Danone would give a share price 10% above current levels.
Unilever is still far from spotless—but it’s starting to scrub up surprisingly well.