Wednesday, 20 March 2024

Why Unilever Stock Jumped on Tuesday

by BD Banks

Unilever (NYSE: UL) shares jumped out of the gate on Tuesday, rising 3% compared to a 0.2% drop in the S&P 500. That boost erased just a small portion of the losses that shareholders have seen recently, though. The consumer staples giant’s stock is up just 2% in the past year, while the wider market has rallied by over 30%.

Tuesday’s uptick was sparked by news that Unilever is making aggressive moves aimed at boosting profit margins and reaccelerating growth.

Goodbye to ice cream

Unilever is planning to spin off its ice cream business that’s anchored by the Ben & Jerry’s and Magnum brands, executives said in a press release before the market opened. That move will help the company save cash while focusing more on its core business lines.

Competing in the ice cream space brings unique challenges associated with delivering frozen goods that are mainly popular during the warmer weather months, and Unilever is ready to step away from that market.

The company also announced a new round of cost cuts that could affect 7,500 jobs. This shift, combined with the ice cream sale, will accelerate these rebound plans. “The Board is determined to transform Unilever into a higher-growth, higher-margin business,” Chair Ian Meakins said in the press release.

Looking ahead

Investors will get a fresh look at Unilever’s operating trends when the company announces its first-quarter results in late April. Expectations are modest around that report, since price increases have been slowing and volume is barely rising in the consumer staples industry. Rivals like Procter & Gamble have been reporting declining volumes into early 2024, for context.

It will be several quarters before investors see any concrete effects from the restructuring moves that Unilever announced this week. But Wall Street is still celebrating the fact that management is willing to make bold moves in its bid to speed up growth in 2024 and beyond.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Unilever Plc. The Motley Fool has a disclosure policy.