Unilever PLC (LSE:ULVR) released its full and fourth quarter results yesterday, which on the surface seemed relatively positive.
The FTSE 100 company behind brands such as Ben and Jerry’s and Hellmann’s announced that sales grew by 6.5%, the strongest growth in nine years, with an 18% operating margin, a 10% increase on 2020.
However, investors have seemingly latched onto news that input costs due to inflation will likely be passed onto the end consumer, including grocery stores.
Input costs in the first six months are expected to be €2bn in the first half of the year, with that number expected to ease to €1.5bn in the final six months of 2022.
The company also announced a €3bn share buyback, with it stating it will be moving away from pursuing any more acquisitions following the failed takeover of GlaxoSmithKline’s consumer healthcare business last month, a significant u-turn.
Neil Wilson, market analyst for markets.com adds that chief executive Alan Jope’s answer to the failed GSK takeover is to “chuck some money down on the table and pass the shoe,” with that shoe seemingly passed on to Nelson Peltz.
Billionaire Peltz has previous when it comes to shaking up big brands, having taken an active investor role in Unilever rival Proctor & Gamble, whose share price more than doubled since he joined the board in 2017, before stepping down last August.
The American businessman had reportedly been building a stake in the company before the failed takeover of GSK, with some analysts believing the debacle should only strengthen his hand for any future plans he has for the brand.
Dan Lane, senior analyst at freetrade adds that the failed bid has intensified the spotlight on chief executive Alan Jope and his ability as a boss, but, in reality, the shares have “ebbed and flowed over the past years,” without any real growth since 2017.
Like Vodafone, it seems the heads of Unilever have turned to outside intervention to change the fortunes of the business, despite Jope and chief financial officer Graeme Pitkethly taking home millions of euros last year.
The company has remained coy so far over Peltz’s influence and stake, but, some analysts believe his mere presence and reputation is already causing a stir.
Richard Hunter, head of markets at interactive investor, highlights his existence as a shareholder is adding to the “current unease on how management is dealing with what has been doddering progress over recent times.”
The abrupt u-turn on pursuing acquisitions, weeks after it said it planned to reposition its portfolio into higher growth categories, highlights the confusion, he said.
Hunter added that the company has set “lofty ambitions” with its report yesterday but, for the time being, the “jury remains out.”
Russ Mould, an investment director at AJ Bell also comments that the presence of Peltz on the board “does raise the pressure on Unilever.”
He adds that announcing higher cash returns for shareholders and a buyback programme are “classic activist targets,” so the decisions may be a response to his appearance on the share register.
Mould does also mention, however, that the company has tried a few activist ploys before, including buybacks, cost cuts and plans to refine its portfolio to boost its growth and argues these initial plans could have been a way of “fending” Peltz off.
Lane notes that any attempt by Jope to appease Peltz with these activist tactics are futile and all the billionaire will want to see “value creation and high returns on capital.”
It will be interesting to see, given Peltz’s history, whether Unilever announces more strategic moves that are akin to activist intervention.
Changes to board structure and remuneration, further asset disposal (the company recently sold its tea business to CVC), and a restructuring of poorly performing units, among others, are signs to look out for.
Any intensification of these types of moves should point to growing Peltz significance