13 February 2025
If you are covering the latest financial results from Unilever, Nestle or BAT, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Consumer companies are stuck in somewhat of a difficult environment just now and this is reflected in the stories emanating from Unilever, Nestle and British American Tobacco this morning. Consumers simply aren’t spending as they were in the aftermath of the pandemic, and an uncertain economic environment has caused a retrenchment in consumer behaviour, with discretionary items the first to go.
“Guidance from Unilever was especially weak, whereas while Nestle continues to go through its challenging period the reiteration of guidance is a big relief for investors. Ultimately, in terms of sales growth both companies are doing a solid job. Personal care and beauty continues to outperform food divisions, but the subdued consumer, and rising commodity prices, is definitely taking its toll. Unfortunately for Unilever and Nestle, the market doesn’t tend to like a story of just about managing today in the hope for better fortunes in the year to come, and their valuations suggest they should be performing more consistently than they are.
“Indeed, while Nestle’s struggles have been well documented, it was hoped that Unilever was embarking on somewhat of a sustained turnaround. This might still be happening, but it will take longer than perhaps some hoped, with some complexities still to iron out in the business. The separation of the ice cream division remains on track, with London looking like it will miss out on the primary listing, and that will go some way to helping streamline the conglomerate.
“BAT, meanwhile, continues to operate in an unloved sector and as such it is doing a good job putting up prices to offset declines in volumes. However, it is the growth in new categories that is perhaps a little more concerning. Sales of transition type products, vapes, e-cigarettes etc., are good but not great and definitely behind some of its peers. The transition is happening for BAT but it needs to happen quicker in order for the company to benefit.
“Ultimately, though for consumer companies this is a tough environment to operate in. All three companies continue to offer investors good potential for future growth, but for now it is an unexciting and difficult market. Unilever may be right in that the second half of 2025 will be better, but a lot can change between now and then, especially given the political and economic upheaval we are witnessing.”
