1 Reason Why I Wouldn’t Buy Unilever plc Today

Royston Wild explains why Unilever plc (LON: ULVR)’s Foods division remains in peril.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why a murky margarine market is crimping Unilever’s (LSE: ULVR) (NYSE: UL.US) sales outlook.

Margarine sales on the melt

Unilever is far and away the planet’s largest manufacturer of margarines, a position achieved through its suite of vegetable spreads including the likes of Flora and Bertolli. In recent times, however, this has proved to be a millstone around the company’s neck as the popularity of butter amongst shoppers has rocketed higher.

Indeed, the household goods leviathan commented in April’s interims that, during January-March,

despite the successful launches of great-tasting products like Rama with Butter in Germany, the decline of the margarine market remained a drag on our spreads growth.

Although the business noted that it had grabbed a larger market share in Europe and North America, the margarine space is providing a Unileversmaller and smaller pool of opportunity for the likes of Unilever in its critical Western markets.

In the United States alone, sales have been in a tailspin since the mid-1990s, and the US Department of Agriculture expects margarine sales to slump to their lowest since the Second World War in 2014. At the same time butter consumption per capita is expected to hit its highest level for more than 40 years.

Vegetable spreads have been pushed to the back of the fridge as customers have become increasingly concerned over the high levels of trans fat, not to mention the complexity of the manufacturing process. And egged on by the marketing campaigns of supermarkets, not to mention the new generation of television chefs, people are now flocking back to more natural and traditional foods such as butter.

Waning demand for its margarines contributed heavily to the poor performance of Unilever’s Foods arm, which saw like-for-like sales slump 1.7% during the first quarter and underlying volumes droop 2%. The business has been engaged in aggressive asset-shedding across the division in order to strip out a host of underperforming brands, from its Ragu and Bertolli pasta sauce labels in North America through to its Peperami meat snacks in Europe.

Given the state of the margarine market, many expect Unilever to follow these sales with the divestment of its spreads businesses in the near future. But until the company can rid itself of these underperforming assets, the company’s Food division is likely to continue to weigh on group earnings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any stocks mentioned. The Motley Fool owns shares of Unilever.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »