How Unilever Makes Money

Beauty and personal care products generate the most profit

Unilever PLC (UL) is a consumer goods holding company headquartered in the U.K. Through its subsidiaries, the company manufactures and sells beauty and personal care products, foods and refreshments, and a range of home care products. Unilever owns more than 400 brands in over 190 countries. Some of those brands include popular names like Dove, Vaseline, Lipton, Hellmann's, Ben & Jerry's, Seventh Generation, and Sunlight.

In order to compete in the highly competitive global consumer goods market, Unilever has structured its business model around building well-known, high-quality brands that consumers trust. Some of the company's major rivals include Switzerland-based Nestlé S.A. (NESN), Procter & Gamble Co. (PG), Johnson & Johnson (JNJ), PepsiCo Inc. (PEP), and Colgate-Palmolive Co. (CL).

Key Takeaways

  • Unilever is a global consumer goods company, offering beauty and personal care products, food and refreshments, and home care products.
  • The beauty and personal care segment generates the most profit, but the food and refreshments segment is currently growing the fastest.
  • Unilever is looking to accelerate growth in the U.S., India, China, and other key markets.
  • The COVID-19 pandemic continues to have an impact on some of the company's key markets.
  • Unilever recently acquired digital-led skin care brand Paula's Choice.

Unilever's Financials

Unilever announced in late July results for the first half of its 2021 fiscal year (FY), the six-month period ended June 30, 2021. The company reported net profit of €3.4 billion ($4.0 billion), down 4.1% from the year-ago period. Revenue, which the company refers to as "turnover" and defines as sales of goods after deducting discounts, sales taxes, and estimated returns, rose 0.3% to €25.8 billion year-over-year (YOY). Turnover, also referred to as "overall turnover," is a term for revenue commonly used in Europe and Asia.

Unilever's underlying sales growth, which excludes the impact of acquisitions, disposals, currency fluctuations, and excessive price growth in hyperinflationary economies, was 5.4% compared to the first half of FY 2020. Operating profit for the period, meanwhile, was €4.4 billion, down 5.3% YOY. Excluding certain items, the company's non-GAAP underlying operating profit for the first half of FY 2021 was €4.8 billion, down 4.7% YOY.

Unilever warned that the COVID-19 pandemic continues to have an impact on its operating environment. Management said renewed restrictions in India have had a significant impact in the second quarter, albeit not as severe as in the year-ago period, and that China is returning to normal but is still below pre-pandemic levels. Elsewhere, the company's markets in North America and Europe were weaker in the first half of FY 2021 compared to the same period in FY 2020—when there was a surge in demand for in-home food and hygiene products.

Unilever's Business Segments

Unilever has three main business segments: beauty and personal care; foods and refreshment; and home care. It provides a breakdown of revenue (i.e. turnover) and operating profit for each of these segments, which we look at in closer detail below.

Beauty & Personal Care

The company's beauty and personal care segment is primarily comprised of sales of the following products: skin cleansing, such as soap; hair care, including shampoo, conditioner, and other styling products; skin care, such as face, hand, and body moisturizers; and deodorants. In the first half of FY 2021, revenue for the beauty and personal care segment fell 1.9% YOY to €10.4 billion, comprising about 40% of companywide revenue. Meanwhile, the segment generated an operating profit of €2.1 billion, down 13.1% compared to the year-ago period. It accounted for about 47% of the company's total operating profit.

Foods & Refreshment

Unilever's foods and refreshment segment is primarily comprised of the following product categories: ice cream; savoury, such as soups, bouillons, and seasonings; dressings, including mayonnaise and ketchup; and tea. The segment's revenue for the first half of FY 2021 rose 4.4% YOY to €10.2 billion, accounting for nearly 40% of total revenue. Operating profit, meanwhile, was up 10.3% compared to the year-ago period to €1.7 billion, comprising 38% of the total.

Home Care

The home care segment is primarily comprised of sales of washing powders and liquids, rinse conditioners, and a range of various other cleaning products. Unilever's home care segment posted revenue of €5.2 billion in the first half of FY 2021, which represented a 2.7% drop YOY and about 20% of the companywide total. Operating profit, meanwhile, was down 12.0% compared to the year-ago quarter to €655 million, comprising nearly 15% of total operating profit.

Unilever's Recent Developments

On Aug. 2, 2021, Unilever revealed that it had completed its acquisition of Paula's Choice, a digital-led skin care brand, having first announced its intention to buy the company on June 14, 2021. Unilever acquired Paula's Choice from TA Associates, a private equity firm. Financial terms of the deal were not disclosed.

Article Sources
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