Unilever (NYSE:UL) recently said that it may consider the sale of its U.S. and Canada Skippy peanut butter business. The business had revenues of $300 million in 2011 with an estimated value in the range of $300-400 million. Skippy is a strong brand in North America and has 18% share of the U.S. peanut butter market. However, it plays second fiddle to J.M. Smucker’s owned Jif, which has 34% market share. 
We believe this business sale will allow the company to focus on higher growth food brands and faster-growing, higher margin beauty and health brands such as Dove and Axe. Another emerging trend in the company’s strategy is the reduction in its exposure to North American markets while continuing successful expansion into emerging markets such as Indonesia and Russia.
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More Opportunities for Growth in Emerging Markets
Divestitures in North America will enable the company to direct assets toward faster growing markets such as Russia. Unilever has invested around €2 billion in Russia over the past 20 years, and is looking for further investment opportunities to drive growth, although it believes that the majority of growth in the country going forward will be organic. The company recently purchased a majority stake in Russian beauty company Concern Kalina and sold its North American frozen foods business to ConAgra Foods.
Similarly, growing population and incomes in countries like Indonesia provide an opportunity for tremendous growth. On the other hand, demographic trends in North America are currently unfavorable for consumer goods companies, although there is still potential for premium products such as ice cream brand Magnum.
Shift in Focus Towards Beauty & Personal Care
The personal care division, which includes skin care, hair care, oral care and deodorants, has grown substantially over the past decade, both organically and through mergers and acquisitions. It is now Unilever’s largest segment as a percentage of total revenues. However, there is still scope for further growth in the division, considering the prospect of gaining market share from competitors such as Procter & Gamble, especially in areas such as skin & hair care.
We currently have a Trefis price estimate of $37 for Unilever, which is in-line with the market price.Notes:
- Unilever Said to Put Skippy Peanut Butter Brand Up for Sale, Bloomberg, October 2012 [↩]