Unilever PLC (UL) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates positive sentiment with strong growth in emerging markets, consistent U.S. volume growth, and significant productivity savings. The sale of the Packaging business will fund shareholder returns and debt reduction, enhancing financial health. Although there are some concerns, such as flattish European markets and some ambiguity in management responses, these are outweighed by the optimistic guidance, strong brand performance, and strategic focus on innovation and e-commerce. The positive shareholder return plan and stable adjusted EBITDA further support a positive outlook.
Key Financial Performance
Underlying sales growth 3.5% for the full year, with volumes at 1.5% and price at 2%. This reflects disciplined execution and a sharper focus on volume-led growth.
Power Brands sales growth 4.3% underlying sales growth for the full year with volumes up 2.2%. This performance reflects prioritization choices and increased brand and marketing investment.
Beauty & Wellbeing sales growth 4.3% underlying sales growth, evenly split between volume of 2.2% and price at 2.1%. This was driven by innovation, premium brands like Dove and Vaseline, and focused execution.
Personal Care sales growth 4.7% underlying sales growth, with price contributing 3.6% and volumes growing 1.1%. This was supported by premium innovations and strong performance in developed markets like North America.
Home Care sales growth 2.6% underlying sales growth, primarily volume-led at 2.2% with a modest price contribution of 0.4%. Growth was supported by premium innovations and improved execution in key markets like India.
Foods sales growth 2.5% underlying sales growth, with 0.8% from volume and 1.7% from price. Growth was driven by strong performance in emerging markets and premiumization efforts like Flavored Mayonnaise.
Underlying operating margin Expanded by 60 basis points to 20% in 2025, driven by gross margin expansion, productivity savings, and increased brand and marketing investment.
Free cash flow EUR 5.9 billion, representing 100% cash conversion. Excluding Ice Cream demerger-related costs, free cash flow was EUR 6.3 billion, highlighting strong cash-generating capabilities.
Net debt EUR 23.1 billion at year-end, reduced by EUR 1.4 billion due to cash generation and the Ice Cream demerger, offset by dividends, acquisitions, and share buybacks.
Return on invested capital (ROIC) 19%, benefiting by around 100 basis points from the Ice Cream demerger, reflecting higher quality and lower capital intensity of the group.
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Operating Highlights
Portfolio transformation: Unilever completed the demerger of its Ice Cream business and executed 10 deals, including acquisitions like Minimalist, Wild, and Dr. Squatch. These acquisitions enhance exposure to premium segments and e-commerce, particularly in the U.S. and India.
Innovation: Unilever introduced premium innovations such as Dove Hair's fiber repair range, Vaseline's continued growth, and Liquid I.V. becoming a $1 billion brand. New innovations like powder hydration and probiotics in surface cleaning are planned for 2026.
Brand performance: Power Brands, representing 78% of turnover, delivered 4.3% sales growth, with Dove, Vaseline, and Liquid I.V. achieving double-digit growth.
Geographic performance: Developed markets grew 3.6%, led by North America with 5.3% growth. Emerging markets grew 3.5%, with strong performance in India (4% growth) and Indonesia (17% Q4 growth). China showed improvement in the second half.
Category performance: Beauty & Wellbeing grew 4.3%, Personal Care 4.7%, Home Care 2.6%, and Foods 2.5%. Growth was driven by premium innovations and improved execution.
Cost efficiency: Overheads improved by 50 basis points, with EUR 670 million in savings from the productivity program. Gross margin expanded for the third consecutive year to 46.9%.
Marketing investment: Brand and marketing investment increased to 16.1% of turnover, the highest in over a decade, with 100% of incremental investment allocated to Beauty & Wellbeing and Personal Care.
Strategic focus: Unilever is focusing on premium segments, e-commerce, and key markets like the U.S. and India. The Ice Cream demerger and portfolio simplification are central to this strategy.
AI and digital transformation: Unilever is deploying AI for demand generation, marketing, and retail execution, aiming to create a future-fit model for consumer engagement.
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Risk or Challenges
Market Conditions: Soft markets in many parts of the world, particularly in developed markets like the U.S. and Europe, where growth moderated due to subdued consumer conditions and slower market growth.
Emerging Markets: Challenges in Latin America due to macro and political uncertainty, elevated price elasticity, and ongoing consumer demand pressure. Additionally, weaker out-of-home consumption in China impacted Unilever Food Solutions.
Portfolio Simplification: Disposals of non-core businesses and the Ice Cream demerger, while strategically beneficial, resulted in a decline in turnover and added complexity in managing transitions.
Currency Headwinds: Significant currency depreciation in emerging markets and a weaker U.S. dollar reduced turnover by 5.9%.
Commodity Inflation: Inflationary pressures in select commodities are expected to persist in 2026, potentially impacting margins.
Competitive Pressures: Actions to restore competitiveness in key markets like Brazil required corrective pricing and adjustments, indicating challenges in maintaining market share.
Supply Chain and Execution: Operational resets in markets like Indonesia and China highlight ongoing challenges in execution and supply chain optimization.
Economic Uncertainty: Uneven macroeconomic conditions and consumer demand fluctuations in both developed and emerging markets create uncertainty for future growth.
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Guidance & Outlook
Revenue Growth: Unilever expects underlying sales growth for 2026 to be at the bottom end of its multiyear range of 4% to 6%, with underlying volume growth of at least 2%.
Margins: The company anticipates a modest improvement in the underlying operating margin for 2026, supported by structurally strong gross margins and value chain interventions.
Inflation: Inflationary pressures in select commodities are expected in 2026, but overall inflation is projected to be lower than in 2025.
Capital Returns: Unilever has announced a new share buyback program of EUR 1.5 billion for 2026 and expects to sustain attractive and growing dividends supported by strong cash generation.
Strategic Focus: The company will continue to prioritize investments in Beauty & Wellbeing and Personal Care, with a focus on premium segments, digitally native brands, and e-commerce, particularly in the U.S. and India.
Innovation: Unilever plans to double down on premium innovation in 2026, with a strong pipeline leveraging multiyear scientific streams and new innovations, including activations tied to the FIFA World Cup 2026.
Market Conditions: The company expects challenging market conditions in 2026, with soft markets in many parts of the world, but remains confident in its ability to deliver consistent performance.
Operational Efficiency: Unilever aims to complete its EUR 800 million productivity program in 2026, which is already ahead of schedule, and continue to improve overhead efficiencies.
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Shareholder Return Plan
Dividend Payments: Unilever returned EUR 4.5 billion to shareholders in 2025 through dividends. The company maintains a preference for a 70-30 balance between dividends and share buybacks, ensuring consistent and growing dividends supported by strong cash generation.
Share Buyback Program: Unilever executed a share buyback program worth EUR 1.5 billion in 2025. Additionally, a new share buyback of EUR 1.5 billion has been announced for 2026, reflecting confidence in the company's balance sheet and capital allocation framework.
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Key Q&A
Q:Can you talk about the emerging market outlook for 2026, particularly in Brazil, India, China, and Indonesia?
A:Fernando Fernandez highlighted the company's strength in emerging markets as a long-term competitive advantage due to better population growth rates and margin expansion. He noted diversified portfolios in these regions, resilience against volatility, and improving performance across the board. India showed improvement in brand equity and rural execution, while China saw growth acceleration in the second half of 2025. Indonesia benefited from a renewed leadership team and improved sales run rates. Latin America remained flattish, but corrective actions in Home Care and Deos are expected to drive growth in 2026.
Q:What is the outlook for U.S. category growth and innovation pipeline for 2026?
A:Fernando Fernandez stated that the U.S. market showed consistent volume growth over the past three years, with a good start in 2026. He acknowledged some slowdown in Wellbeing but expressed confidence in structural growth. The innovation pipeline includes a U.S.-for-U.S. model and strengthened retailer relationships.
Q:Where did the productivity savings land, and what should we expect for 2026?
A:Srinivas Phatak reported EUR 670 million in cumulative savings, ahead of internal plans. The company expects to deliver the remaining EUR 130 million in 2026, with a cultural shift to maintain lower SG&A costs relative to turnover.
Q:What is the pricing outlook for 2026, and how will inflationary pressures affect it?
A:Fernando Fernandez projected pricing growth around 2% for 2026, slightly below the 10-year average of 3%. Srinivas Phatak noted concentrated inflation in materials like palm oil and surfactants, with deflation in some food-related commodities. Wage inflation and currency devaluation in emerging markets are also factors.
Q:What are the key building blocks for achieving modest margin improvement in 2026?
A:Srinivas Phatak highlighted gross margin expansion through mix, procurement savings, commodity risk management, and capital investment. Overheads will remain lower than sales growth, supporting reinvestment in brands and modest margin expansion.
Q:What is the outlook for Europe in 2026, and how did Power Brands perform compared to non-Power Brands?
A:Fernando Fernandez noted flattish markets in Europe but continued outperformance in Home Care and Personal Care. Foods showed softness in some regions. Power Brands, now 78% of revenue, grew strongly at 6% in Q4, while non-Power Brands, 22% of revenue, saw a 3% decline in Q4.
Q:What is the sequencing of growth for 2026, and what are the expectations for Wellbeing and Beauty categories?
A:Fernando Fernandez guided for at least 4% topline growth in 2026, with 2% volume growth. He highlighted strong performances in Dove, Vaseline, and Hair Care, with new launches and relaunches expected to drive growth. Wellbeing brands like Liquid I.V. and Nutrafol showed solid growth but faced some Q4 challenges.
Q:What are the big new innovations for 2026, and what is the magnitude of TSA receipts from Magnum?
A:Fernando Fernandez mentioned innovations like Dove UV repair range, Vaseline lips, and Hellmann's flavored mayo. Srinivas Phatak did not quantify TSA receipts but noted they are cost-plus contracts tapering off by 2027.
Q:What is the strategy for Prestige Beauty, and how sustainable are the Food margin improvements?
A:Fernando Fernandez emphasized Prestige Beauty as a natural extension of Skin and Hair Care, with a focus on e-commerce and selective acquisitions. Srinivas Phatak attributed Food margin improvements to portfolio rationalization, pricing architecture, and overhead savings, with a focus on volume-led growth.
Q:What is the impact of discontinuations and the performance of Dr. Squatch?
A:Fernando Fernandez noted discontinuations mainly in non-Power Brands, with Dr. Squatch continuing double-digit growth, particularly in male grooming and Deos.
Q:What is the channel shift in North America, and how does it affect innovation?
A:Fernando Fernandez reported strong double-digit growth in digital commerce, particularly in e-commerce and social commerce. He emphasized focusing on core brands and digitally-native acquisitions to combat competition from smaller brands.
Q:What are the CapEx plans for 2026, and how much will be spent on margin-enhancing activities?
A:Srinivas Phatak stated that 55-60% of CapEx will focus on productivity and savings, with strict investment criteria and a commitment to 100% cash conversion.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of TSA receipts from Magnum, citing cost-plus contracts and tapering timelines. Additionally, they did not quantify the impact of discontinuations across the group, leaving some ambiguity in these areas.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America
Beauty Wellbeing
Brands
Brazil
China
Cream demerger
EUR
Foods
Home Care
Ice Cream
India
Personal Care
Power
Unilever
acquisition
action
basis point
brand
capital
category
condition
consumer
currency
digit volume
disposal
focus
group
improvement
innovation
investment
margin basis
portfolio
premium
return
sale volume
strength
volume price
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