Unilever: Ice Cream Business Demerger, Productivity Gains, and Higher Midterm Guidance Lift Shares

In an ad-hoc press release March 19, Unilever announced its intention to separate its ice cream business, the launch of a productivity program, and, as a result, higher medium-term guidance. More specifically, the group cited ice cream's different operating model, such as supply chain and point of sale that support frozen goods, a different channel landscape, more seasonality, and greater capital intensity as catalysts for the board's decision. The full separation is expected to be completed by the end of 2025. The stand-alone ice cream business will be the largest ice cream company in the world with a 20% market share and double the size of the second largest player. The business, which delivered a turnover of EUR 7.9 billion in 2023, will also have five of the top 10 selling global ice cream brands (Ben Jerry's, Magnum) with exposure both in-home and out-of-home globally. In conjunction with these portfolio changes, Unilever will be launching a productivity program that is expected to deliver total cost savings of around EUR 800 million over the next three years, more than compensating for the estimated dis-synergies from the separation, with net savings expected to be invested in research and development and brands, and also support margin improvements. Associated restructuring costs of proposed changes (7,500 office roles will be impacted globally) will be around 1.2% of group sales for the next three years (up from 1% previously communicated). Finally, after the separation, Unilever expects to deliver mid-single-digit underlying sales growth (versus 3% to 5% previously) and modest margin improvement (in line with previous guidance). Shares traded around 3% higher at the time of writing. We maintain our fair value estimates for Unilever of EUR 52/$56/GBX 4,380 with minor changes due to currency movements. Unilever is one of our top picks in the space.