Last year was a bad one for many companies…but not for consumer goods providers, which had a remarkably strong 2022. One name I’m interested in is the food, home, and personal care group Unilever (UL), remarks Tony Daltorio, editor at Investors Alley.
Consumers swallowed big price increases in 2022 without batting an eyelid. Companies in the sector hiked prices by 10% on average in the fourth quarter of 2022, according to Bernstein analysis, with volumes only 2% lower.
It was an even better year for companies in the sector with strong brands that translated into pricing power. One such company in particular is in the middle of a great turnaround and poised for profits…UL.
It has a geographical presence in more than 190 countries and reaches more than 2.5 billion consumers worldwide. Some of its leading brands include Dove, Lifebuoy, Hellman’s, Knorr, Lipton, and Haagen-Dazs.
Unilever was formed in 1930 when the Dutch margarine company Margarine Unie (which had itself been created through a series of mergers in the 1920s) merged with the U.K.’s Lever Brothers Ltd., which had been founded by William Hesketh Lever in 1885 to produce soap and had subsequently diversified into fish, ice cream, and canned foods.
Why Unilever? Because it looks to be poised for a major turnaround, thanks to the entry of a new executive. The company’s new CEO, Hein Schumacher, is the 51-year old head of a privately-held Dutch dairy cooperative—FrieslandCampina—whose annual revenues are about $12.5 billion. He is backed by activist investor Nelson Peltz.
I agree with Peltz’s faith in Schumacher, based on his history. The new CEO is not what you’d expect from a boring dairy cooperative executive—he completely restructured the company through asset disposals, factory closures, and job cuts.
Poor past performance is why UL sells at a valuation discount to its peers. Unilever trades at 17.6 times 2023 earnings, versus Nestlé at 21.6 times and Procter & Gamble (PG) at 24 times.
Schumacher—a food executive who once worked at Heinz Foods (that’s how Peltz first knew him)—should know what assets to keep and what to sell. Already, thanks to Peltz, Unilever has reorganized its business into five segments: Beauty & Wellbeing (20% of sales), Personal Care (23%), Home Care (21%), Nutrition (23%), and Ice Cream (13%).
Dividend-wise, Unilever does pay out quarterly. The indicated annualized payout in U.S. dollars is $2.26 and the recent yield was about 4.40%. I look for modest growth in the dividend going forward, moving up to $2.35 for 2023 and $2.66 for 2024. The company also has a stock repurchase program. For the full 2022 year, it repurchased 34.2 million shares for 1.5 billion euros.
Recommended Action: Buy UL in the $48 to $55 range.