What Are Unilever’s Key Revenue and EBITDA Drivers?

by Trefis Team
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Unilever Group
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Unilever‘s (NYSE: UL) turnover revenues decreased 5% year-over-year (y-o-y) in the first nine months of fiscal 2018, primarily due to a negative currency impact of 8.1% and a net impact from the disposal of the spreads business to KKR. The company’s organic growth of 2.9% was mostly comprised of volume growth of 2.3% and pricing growth of 0.6%. The consumer goods company reported an improvement across its major business divisions and benefitted from strong volume growth in emerging markets.

Unilever’s stock price has fluctuated between $51 and $57 since the beginning of fiscal 2018. We have maintained our long-term price estimate for Unilever at $58, which is around 10% ahead of the current market price. We have created an interactive dashboard on Unilever’s Revenue and EBITDA breakdown, which details our forecasts for the company in the near term. You can modify our assumptions to see the impact any changes would have on the company’s revenue and EBITDA. Overall, we expect Unilever to generate around $61 billion (+1% y-o-y) in revenues in 2018, and earnings of almost $7.7 billion. Of the total expected revenues in 2018, we estimate $13.7 billion in the Foods business, around $11.5 billion for the Refreshments business, nearly $23.8 billion for the Personal Care segment, and almost $12.2 billion in the Home Care business.

Breakdown By Division

Personal Care is Unilever’s largest division, having overtaken the Foods division in 2011. The company’s shifting priorities are evident from the fact that the revenue share of its Foods unit has fallen from 30% in 2011 to 23% in 2017, while the share of its Personal Care segment has grown from 33% to 39% over the same period. More recently, Unilever named the expansion of the segment through acquisitions as one of its top priorities. Some of the recent acquisitions in the space include Quala, Carver Korea, Sundial, Schmidt’s Naturals, and EquilibraSuch strategic acquisitions should ensure that the segment becomes a key growth driver for the company going forward. Going forward, we forecast the company’s Personal Care revenues to grow over 2% y-o-y in fiscal 2018 and reach $24 billion.

On the other hand, the Food division’s revenues have been falling recently as the company was not able to generate significant growth from the spreads business, which resulted in its divestiture to KKR. Unilever’s Food division’s contribution to the company’s total EBITDA has also declined significantly, from 41% in 2010 to 22% in 2017, due to the aforementioned factors. Going forward, we expect the company to recover from this sharp decline due to its focus on cost-saving programs, and the divestiture of its spreads business. However, we forecast the divisional revenues to see a declining trend in fiscal 2018 as well, and then increase subsequently.

Unilever’s refreshments business saw revenue declines in recent years before bouncing back in 2016 to $11.1 billion. This was due to rising competition globally from organic food brands and alternative diet products to its Slim-Fast brand. However, there was strong growth in luxury products such as gelato and dairy-free products made with soy milk, for instance. These higher-priced, high-margin products helped Unilever’s Refreshments business bounce back in 2016. Going forward, we expect this segment to grow around 3% y-o-y and reach $11.5 billion in revenues by the end of 2018. It should also be noted that Unilever is the leader in the global ice cream market and accounts for 22% of the total market. Despite the current slowdown due to rising health awareness, the global ice cream market is expected to hit the $89 billion mark by 2022, growing at an annual average of nearly 5%. Factors such as growth in premium products and growing consumption in emerging markets (India and China) could help the company pick up its growth in this segment.

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