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Earnings Call Transcripts·

Q&A | Unilever Investor Event 2026 - Unilever

UN

  • Explicit Guidance:

    • Long-term Growth Range: Retained mid-term volume growth guidance of 4% to 6%, noting the current year's 8% (Emerging) vs. flat (Developed) split is an anomaly caused by temporary headwinds in US Home & Personal Care (HNC) and Well-being (Nutrafol/Well-being channel rebalancing).
    • US Market Outlook: Expects long-term US volume growth to normalize to mid-single digits (2.5%–3%) driven by volume, mix, and premiumization.
    • Europe Market Outlook: Targets single-digit growth in the future, aiming for at least market-beating growth ("selective growth strategy") compared to historical declines, while managing exposure to forex devaluation.
    • India Market Outlook: Expects long-term growth to normalize to high single digits to double digits (assuming 6% GDP growth and 2-3% inflation), down from previous 15-20% hyper-growth periods.
    • P&L & Margin Targets: Aiming to close a 300–400 basis point gross margin gap with HPC peers over a multi-year journey, leveraging productivity levers (volume, mix, CapEx/Opex productivity, purchasing).
    • Premiumization Targets: Targeting to increase the premium segment of the portfolio from 35% to 50%, noting a gross margin differential of 500–700 basis points (compensated by higher Brand Marketing Investment/BMI).
    • Revenue Mix Target: Aims for the top 25 power brands to generate 80% of revenue (up from 75% recently) within a 4–5 year timeframe, focusing capital on winners.
    • Marketing ROI: Expecting a 10%–15% improvement in marketing ROI relative to past benchmarks to maintain top-line growth in a fragmented media landscape; viewed as a fundamental investment rather than a direct P&L margin expansion source.
    • Category Growth: Observes weighted global volume growth at ~2%, driven by Emerging Markets (+1% to +1.5% above average) and flat/negative in Developed Markets, with a "K-shaped" divergence between fast-growing and declining segments.

  • Business-Segment Outlook:

    • Professional Hair Care: Acknowledged as a portfolio gap; currently making inroads with K18 (growing very fast). No immediate large-scale acquisitions planned; focus remains on organic development and leveraging existing science.
    • Male Grooming: Identified as a massive opportunity, particularly in the US (60% of current male business). Strategy involves expanding beyond entry categories (skin cleansing, deodorants) into facial cleansers and other adjacencies using core brands (Dove Men+, Dr. Squatch, Rexona, Axe, Vaseline Men).
    • Oral Care: Maintaining current geographic footprint (strong in Vietnam, Indonesia, parts of Europe, India); no plans for expansion into new geographies or categories; focus is on innovation to protect incumbency.
    • Color Cosmetics: Adopting a selective/hybrid strategy; interested in face-color hybrids (e.g., L'Oréal's foundation/skincare mix) and high-end prestige with limited SKUs (e.g., Hourglass). Explicitly avoiding pure-play color cosmetics with high SKU fragmentation and working capital intensity.
    • Fine Fragrances: No plans to enter the fine fragrance category due to volatility; potential exists only in body mists and hair fragrances within existing brand ecosystems.
    • Well-being: Expected to return to substantial growth in the second half of next year following channel rebalancing and resolution of Nutrafol issues.
    • Power Brands: Expecting 4.4% volume growth for the portfolio of power brands vs. 3.3% for the group; remaining 20% of the portfolio expected to be flat or negative, managed via resource reallocation and divestitures.

  • Market and Competitive Outlook:

    • Retailer Power: Anticipates increasing retailer power, specifically via retail media networks (citing ~30% of profit for one key retailer in a major market), requiring adaptation of capital allocation models.
    • Private Label/Low-End: Believes HPC categories (especially prestige and scientific performance) are insulated from private label expansion due to the need for clinical differentiation and professional endorsement.
    • Consumer Behavior: Noting a shift in male grooming due to rising single-household rates (29% US, ~37% Europe); moving away from female-purchased items to targeted male communication.
    • Innovation Cadence: Dual strategy required: "Big, Better, Disruptive" innovations (e.g., Wonder Wash) for global scale, and "Faster, Content-Driven" innovation (e.g., TikTok Shop adaptations) for social commerce markets.
    • Machine Readability: Leveraging partnerships (e.g., with Google) to make brands "machine discoverable" for AI/LLMs, creating a structural advantage for big brands over private labels in AI-driven search.

  • Macro / Industry Outlook:

    • Economic Environment: Describes a "K-shaped economy" in developed markets with significant premiumization opportunities; consumer goods expected to remain resilient (inelastic) during inflationary periods.
    • Interest Rates: Believes durables decline when rates rise, but consumer goods (especially premium) benefit.
    • Currency/FX: Expects to manage impacts from forex devaluation in Emerging Markets.
    • Cost Environment: Acknowledges "extreme volatility" in costs; notes that recovering 100% of cost inflation via pricing is not demonstrated industry-wide, necessitating productivity levers.

  • Strategic Initiatives:

    • Investment Focus: Committed to increasing R&D and BMI spending to support premiumization and scientific proof; acknowledging the business is currently "underinvested" relative to needs.
    • Portfolio Rationalization: Planning further divestitures (targeting ~$1B from the $8B pipeline) and delisting non-power brands; aiming to focus resources on winners.
    • Europe Restructuring: Under new leadership (Harish), Europe will pursue a selective growth strategy (similar to China), focusing on leading positions and premium digital disruptors (e.g., Tatcha, Hourglass, Dermalogica, Liquid IV, Grunz) with no capital allocation for acquisitions; growth will be organic.
    • Productivity & CapEx: Focusing on "closing the gap" through backward integration (e.g., palm oil structural interventions), packaging hubs, and bringing internal tech expertise back in-house rather than outsourcing.
    • Premiumization Strategy: Injecting "aspirationality" while maintaining a "democratizer" position; ensuring brands do not stretch beyond natural price points (e.g., skepticism of face care moving beyond $20 price points for mass brands).

  • Risks and Headwinds to Outlook:

    • Execution Risks: Failure to close the 300–400 bps margin gap due to inability to price out inflation, manage complexity, or execute productivity levers effectively.
    • Competitive Displacement: Risk of private label gaining traction if scientific differentiation is not maintained; risk of retailers capturing more profit via retail media.
    • Market Volatility: Potential for LLMs to alter consumer discovery pathways, favoring brands with strong scientific proof and machine-readability; risk of "under-investing" in long-term innovation to chase short-term margins.
    • Portfolio Drag: Structural challenges in specific legacy brands or categories (e.g., Grow and Lovely in India facing premiumization headwinds; Lifebuoy in shifting hygiene-to-care landscape) that may not deliver "power brand" growth rates.
    • Macro Shocks: Potential for cost inflation to exceed the company's ability to recover via pricing or productivity in a volatile environment.

  • Management Tone on the Future:

    • Confidence: High confidence in the 4–6% mid-term growth range and the ability to close margin gaps, framed as an "ambitious but solid" mid-term range.
    • Cautious Optimism: Explicitly warns against being "too greedy" with premiumization or brand stretching; emphasizes "strategy is the art of sacrifice."
    • Long-Term View: Repeatedly emphasizes a multi-year journey for margin expansion, rejecting short-term fixes (e.g., "not trying to get there in 4–8 quarters").
    • Resoluteness: Firm commitment to investing in R&D and brands despite current underinvestment, stating "we will invest" categorically.
    • Differentiation: Highlights a shift from pure volume to "quality growth" and "hard currency earnings," particularly in Europe.

  • Miscellaneous:

    • K18 Growth: K18 is expanding internationally with plans for all markets with >250M population; driven by Unilever's core science (e.g., "Future IQ," "Air Wash").
    • AI/LLM Impact: Believes LLMs favor big brands with "big scientific budgets" and "clinical proof"; Intentional strategy to replicate clinical trials locally to enhance AI discoverability.
    • Retail Partnerships: Highlighting Google partnership for "machine readability" as a massive competitive advantage for deploying data at scale across retailers (Walmart, Atacado, SM).
    • Organic Growth Preference: Explicitly states no intention to use M&A for growth in Europe or to acquire in professional hair care at this stage, preferring to extract growth from the existing portfolio.