US Stocks: Unilever shares fall on investor concerns about food business spin-off

Unilever shares fell 3.5% on Wednesday with investors concerned that the maker of Hellmann’s sauces would get “distracted” by the potential spin-off of its food business, questioning the benefits so soon after its protracted ice cream unit split. Bloomberg News reported on Tuesday that Unilever is in the early stages of weighing a separation ‌of its food ⁠assets, citing people ⁠familiar with the matter. The news comes just months after Unilever separated from its ice cream brands, which listed as The Magnum Ice Cream Company in December, nearly two years after the spin-off was first announced.

“(CEO Fernando Fernandez) needs another year under his belt before he looks at splitting off food; geopolitical issues consumers are facing also need to calm down,” Barclays analyst Warren Ackerman said. Fernandez took the helm at Unilever just over a year ago after the ouster of his predecessor, Hein Schumacher. Sources told Reuters at the ⁠time that ‌the board hoped Fernandez would quickly streamline Unilever’s sprawling portfolio.

Shares of rival consumer firms, including Reckitt and Nestle, also fell on Wednesday.

Unilever declined to comment.

Unilever’s food business, which also makes ⁠Knorr bouillon cubes and Marmite spreads, reported an operating profit of 2.9 billion euros ($3.34 billion) last year. Barclays values the food business at as much as 10 times EBITDA, or roughly 30 billion euros.

“Demerging food is not straightforward as there are significant tax costs and lower economies of scale in emerging markets,” W1M portfolio manager Tineke Frikkee said. “There is also then the risk Unilever may buy something to replace sales or profits and the debate around over-the-counter healthcare may resurface.”
That said, investors have for years pushed for the company to sell its low-growth food business, where underlying ‌sales rose only 2.5% last year and weighed on business growth. In comparison, Unilever’s beauty and wellbeing unit that makes Dove soap and Vaseline moisturisers grew underlying sales by 4.3%. The food business, though higher-margin than the beauty and ⁠wellbeing business, does not meet Unilever’s short-term goal to grow underlying sales by 4-6% each year. Billionaire activist shareholder Nelson Peltz was revealed to have a stake in Unilever in 2022, and the subsequent restructuring that ripped through the company has prompted the departure of two CEOs and the sale of several smaller food brands like The Vegetarian Butcher, as well as the ice-cream spin-off.

“This is a time of GLP-1, anti-packaged food – the U.S. food industry has been anaemic for years,” Ackerman said, adding that household and personal goods brands also fare better because companies can more easily argue their increasingly expensive products are scientifically better than cheaper private label alternatives.