Unilever’s new CEO aims to reignite growth with strategic overhaul: Barclays

Unilever, under CEO Fernando Fernandez, is executing a strategic overhaul focused on accelerating volume growth, targeting over 2% and outperforming peers, alongside a significant shift towards a premium-weighted portfolio aiming for 50% of revenues. This strategy, which includes the planned divestment of the Magnum ice cream business and increased social media marketing, is driving margin expansion, with operating margins projected to reach 20% post-divestment. Barclays has maintained its "overweight" rating and raised its price target to £56, citing confidence in the multi-year turnaround despite macroeconomic headwinds.

Analysis

Unilever is executing a significant strategic overhaul under new CEO Fernando Fernandez, pivoting from its traditional mass-market model to prioritize accelerated volume growth and premiumization. The strategy targets over 2% volume growth, a substantial increase from its 10-year average, and has already yielded seven consecutive quarters of positive volume growth averaging 2.3%, outperforming peers for ten straight quarters. A key component of this transformation is the planned separation of the Magnum ice cream business in November, which will support the goal of increasing the share of premium products in the revenue mix from 30% to 50% in the mid-term. This portfolio shift is complemented by a modernized marketing approach, with social media's share of the €10 billion marketing budget set to rise from 30% to 50%. Financially, the turnaround is showing tangible results, with gross margins recovering 500 basis points since 2022 to 45%, and the underlying operating margin projected to reach 19% this year and 20% post-divestment. While execution in Europe has been strong, with 2.6% volume growth in Q2 2025, and India is accelerating, a 6% volume decline in Latin America remains a notable headwind. The strategy's credibility is reinforced by Barclays' 'overweight' rating and an increased price target of £56, citing confidence in the multi-year plan.

Key Decisions for Investors

• Investors should view the consistent volume outperformance and margin recovery as early validation of the new management's strategic pivot, potentially justifying a constructive stance on the stock.
• The upcoming separation of the ice cream business in November is a key catalyst to monitor, as its successful execution is critical to achieving the targeted 20% operating margin and premium-focused portfolio.
• Monitor regional performance closely, as the 6% volume drag in Latin America presents a material risk that could offset gains in stronger markets like Europe and India.
• Consider the shift in marketing spend and focus on innovation platforms, like those for Vaseline and Dove, as leading indicators of the company's ability to sustain brand revitalization and capture future growth.