Unilever Update: Shifting Focus From Food Businesses To Personal Care

UL: Unilever logo

A recent Fitch Ratings report expects Unilever (NYSE:UL) to offload more of its low-growth food businesses like savory, dressings and spreads, to rationalize its resources towards its fast-growing personal care business, particularly in the emerging markets. Unilever may look to divest its regional food businesses and use the proceeds from the sale to fund acquisitions in the personal care segment. Unilever is the second largest consumer goods company in the world after Procter & Gamble (NYSE:PG).

View our detailed analysis for Unilever here

Strong Growth Trends in Personal Care Segment

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Unilever’s Personal Care business that includes Dove, Lux Skin & Hair Care and Deodorants Division (together contributing to more than 40% of the stock price) has been performing exceptionally well compared to the food business, with an underlying sales growth of 11% last quarter, and 5% growth over the first six months of FY 2011. This came with a robust 6% volume growth in the category led by Dove, helped 5% by pricing. The segment became Unilever’s largest category this year, contributing to 1/3rd of the company’s sales this year so far. At the same time, volume sales in savory, dressings and spreads segments fell 1%.

In Line With Recent Trends

With better growth prospects, Unilever’s recent acquisitions have focused on Personal Care segment and the company may opt for more such acquisitions, mainly in emerging markets. It has simultaneously been trying to dispose off and reduce its exposure to the food business portfolio that consists of several individual regional brands of condiments, dressings and spreads, that provide Unilever weak growth potential and value-add, especially in the developed markets. The company is likely to further divert the proceeds from food business divestments to fund acquisitions in the personal care segment.

Last month, Unilever announced the sale of its Culver Specialty Brands division (which came to Unilever with acquisition of The Alberto Culver Company) to B&G Foods for $325 million (€230 million) in cash, pending regulatory approval. In August, it sold the UK and Irish rights to its Chicken Tonight and Ragu cooking sauces brands to local firm Symington’s. It also sold off its tomato products business in Brazil to Cargill for approximately €260 million. Unilever has simultaneously made a number of major acquisitions in the personal care segment, which include the U.S. haircare business Albert Culver and household, beauty and personal care brands from Sara Lee in 2010, along with TIGI in 2009. It recently also announced the plans of acquiring 82% stake in Concern Kalina, the leading Russian beauty and personal care company.

We value Unilever with a $32 Trefis price estimate of its stock.