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Why I think this FTSE 100 income stock is set for a poor 2020

There is a high likelihood you have used a Unilever (LSE: ULVR) product in your day-to-day life – you might even be eating or drinking one of their food and beverage products as you read this.

The multinational consumer goods company has been a long time tenant of the FTSE 100, and has long enjoyed stellar performance and steady share price growth across the last five years. 

History and acquisitions 

In September 1929, Unilever was formed by a merger of the operations of Dutch Margarine Unie and British soap maker Lever Brothers, with the name of the resulting company a portmanteau of the name of both companies. 

The 1930s saw ventures into the African and Latin American markets. The Second World War, specifically Nazi occupation, meant investing further into Europe was not a possibility, therefore efforts were focused on the UK and US. 

Unilever tactically and astutely has acquired many companies across the globe in its rich history, and now possesses four main subdivisions. These are food and beverage, cleaning agents, beauty products and homecare. Currently Unilever boasts over 400 brands and operates in 190 countries across the world, with a turnover of over 50 billion Euros. 

Performance and problems arising

Focusing on recent performance, the Unilever share price was flying high at 5,300p in September last year. Fast forward a few months and it dropped by 20% as of mid-January 2020. 

Unilever announced it was expecting less than previously projected growth, citing problems in India and China. To add to this admission, it also announced growth for the first half of 2020 would be below 3%. These updated projections were confirmed with the news of the end-of-year results. 

Additionally, Unilever announced a potential closure of an iconic factory in the North West, much to local dismay and anger. Unilever has cited “irreversible demand in decline for washing powder”. Further rhetoric coming from the consumer goods giant included that the factory is, “running at less than half its capacity”. It added that it would be “challenging to find a commercially sustainable alternative to the closure”.

They say that bad things come in threes; well, Unilever also announced intentions to review its tea business with a focus on brands PG Tips and Lipton. The firm said its sales in the final three months of 2019 were up just 1.5%. However, it said it expected a stronger performance in 2020 overall. 

Unilever said it would look at “all options” for the tea business, including a partial or full sale. According to research firm Kantar, the British tea industry is worth £667m a year, but over the last two years, demand for traditional black tea has fallen by 2.7%. In contrast, demand has risen for other types of tea, with herbal teas now worth £52m and cold infusions valued at £11.2m.

Opportunity or decline?

Looking at recent news and share price activity, I would currently view Unilever as a high-risk stock. With slow growth projected in the first half of 2020, the omens are not positive right now. Some people with an appetite for risk may view this as an opportunity. I for one would not share that view, and would rather watch intently to see how things play out.

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Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.