Unilever’s revelation of the sudden departure of Hein Schumacher – before he could celebrate a second summer as CEO – seemed shrouded in mystery.
But the devil might just be in the detail – in the case of Unilever, the choice of words used by chairman Ian Meakins to announce the exit of Schumacher just eighteen months after he joined the CPG giant from dairy group FrieslandCampina.
And the expectations on incoming chief Fernando Fernandez – promoted to CFO in January 2024 from president of the company’s beauty and wellbeing division – might well weigh heavily, with the terminology expressed by Meakins indicative of the pressures on executives to deliver results in such a fraught operating environment.
That environment was evident in the comments coming out of CAGNY presentations last week around consumers still struggling with food affordability, while manufacturers are still having to raise prices to offset inflation-linked costs and, at the same time, protect volumes and margins.
“Speed” and “urgency” would appear to be the not-so-obvious details in Meakins comments but you would have to look closely.
The “board is committed to accelerating its execution”, the Unilever chairman said in a statement, referring to the Growth Action Plan (GAP) Schumacher put in place in October 2023, a speedy move just three months after taking the CEO baton.
And, perhaps more revealing, Meakins added: “The board has been impressed with Fernando’s decisive and results-oriented approach and his ability to drive change at speed…
“Having worked with Fernando closely over the last 14 months, the board is very confident in his ability to lead a high-performing management team, realise the benefits of the GAP with urgency, and deliver the shareholder value that the company’s potential demands.”
Demand being another operative word there.
Muted share reaction
One might have expected the shock announcement would have sent Unilever’s shares into a dive. But, while they started and traded the day yesterday (25 February) in the red, the decline was limited to around one and a half percent.
Read into that what you will.
“Whilst unexpected, we agree with the board that Fernandez is best placed to accelerate the value unlock. We would buy into weakness,” Barclays analysts, led by Warren Ackerman, wrote in a research note.
“Usually, when you get unexpected CEO change, the market worries about a problem or trading. This isn’t the case here – rather, the board have made a decisive decision to empower, in our view, the best candidate for the next leg of the story.”
Eighteen months is still a short innings for a CEO to make an indelible mark on a business and strategy, but Schumacher has put some notable plans in place at Unilever. Of course, the rate of change may not have been to the board’s liking.
Market talk has suggested the softness in sales growth implied for the early part of Unilever’s new financial year – when 2024 results were delivered on 13 February – might have led to Schumacher’s demise.
While that reasoning seems unlikely given Unilever’s challenges are generally no different to other food manufacturers – although still plausible – his departure is perhaps indicative of the urgency felt by the higher echelons.
Sales subdued
Underlying sales growth (USG) in Schumacher’s first full year as Unilever CEO did slow to 4.2% last year, from 7% in 2023, but volumes ticked up to 2.9% from a meagre 0.2%. Margins also continued in the right direction.
The underlying operating margin increased by 170 basis points to 18.4%, building on the 60 point-gain in the previous 12 months. And the gross margin rose 280 basis points to 45% – the highest in a decade, according to Unilever.
And, for shareholders, underlying EPS advanced 14.7% to €2.98 ($3.12), a vast improvement on 2023’s 1.4% pace.
Nevertheless, with Unilever more than a month into its new fiscal year when the 2024 results were presented, Jefferies’ analysts suggest the sales environment could have worsened since.
That said, both the short- and mid-term USG guidance remained unchanged in yesterday’s executive announcement at 3-5% and 4-6%, respectively. But, setting out the course earlier this month, Unilever guided to only a “modest improvement” in the underlying operating margin in the new year.
“Company reiterates guidance. But indications [were] that 1Q had seen a much slower start, with OSG indicated to be perhaps no more than 3%,” the Jefferies team, including David Hayes, wrote in a follow-up note. “The worry will be that this slowdown has deepened in the last few weeks.”
TD Cowen analyst Robert Moskow emphasised the theme, choosing the term “urgency” in his follow-up commentary.
“On one hand, this announcement fits our buy thesis that the board is running Unilever with a performance-driven mindset and urgency that had been lacking previously,” Moskow wrote in a research note.
But Moskow also expressed some concerns on behalf of TD Cowen: “Making a decision like this in such a short time frame probably reflects a sense of dissatisfaction with the company’s near-term performance to some degree.
“As a result, we can’t help but wonder if the company’s guidance for a back-half loaded 2025 will play out as expected, even though management technically reiterated guidance.”
M&A thirst?
As CEO, Schumacher pledged to streamline Unilever’s portfolio under a productivity programme to realise €800m in costs savings, but while he disposed of a number of assets, mainly in the Netherlands but also in Germany and Romania, the company’s board may have wanted more. And with sales growth slowing in 2024, perhaps a gap needed plugging in terms of acquisitions, a point put forward by Jefferies.
Perhaps even more so as Schumacher has also overseen the planned demerger of the ice-cream business, which is slated to be spun-off by the year-end with a trio of listings announced this month in London, Amsterdam and New York.
And, in November, Unilever confirmed the demerger of its ice-cream business units in India and Indonesia, too.
Whilst Hein’s experience was in foods, remember Fernandez’s background is more HPC (this is Unilever’s future)
Barclays analysts
However, presenting the Growth Action Plan in October 2023, the outgoing CEO said Unilever would “selectively optimise the portfolio” with “no major or transformational acquisitions”.
He added at the time: “We will continue to prune the portfolio in areas that are less strategically attractive. This will be accompanied by selective bolt-on acquisitions focused in specific high-growth areas, provided they meet the higher bar for M&A criteria and parameters for value creation.”
The Jefferies team wrote on Schumacher’s departure: “We would see this creating much uncertainty on the performance in 1Q; what it means for strategy, especially M&A; [and] what now for additional cost cuts and other acceleration of changes.”
They added, noting the aborted bid by Schumacher’s predecessor Alan Jope to buy GlaxoSmithKline’s consumer-health business in 2022: “This provides free-range to the board and new CEO to review strategy. That may see a different positioning on M&A strategy.
“We have considered a need to revisit bigger acquisition ambition, as demonstrated in 1Q22 re: the failed approach for GSK CH for £50bn.”
Fernandez, meanwhile, will take up the CEO role on 1 March, the same day Schumacher steps down but he will stay on until May. Market talk is, at least according to Sky News‘ sources earlier this month, that Unilever has agreed terms to buy the personal-care business Wild, reportedly for £230m ($290.8m).
Was that prospective deal opposed by Schumacher? Perhaps we will never know.
“Whilst Hein’s experience was in foods, remember Fernandez’s background is more HPC (this is Unilever’s future),” the Barclays team wrote.
And what does that suggest for Unilever’s nutrition (food) unit, which has long been touted as a potential divestment target?
Jope reorganised operations into five divisions in 2022 – nutrition, ice cream, beauty and wellbeing, personal care and home care – at a time when speculation was rife that food could be chopped, and even ice cream.
While Schumacher put in motion the plan to spin-off ice cream in March 2024, he had ruled out the full blown disposal of ‘food’.
The Barclays’ analysts gave their perspective: “We believe that Hein did a very good job overseeing a lot of change in a short period of time – strategy reset, organisational change, productivity acceleration and innovation step-up.
“Unilever delivered its best results in more than a decade in 2024 with EPS +15%, and so this decision is not a slight on Hein Schumacher.
“We view it as a hard-nosed decision by the board about who is the best person going forward into the next stage of its evolution.”
Pace was evident in the Barclays’ comments, too, as the Ackerman-led team suggested Fernandez “may look to accelerate portfolio change and drive costs out more quickly”.
And Moskow at TD Cowen also stressed the point: “Unilever’s sudden announcement that Hein Schumacher will step down as CEO on March 1 suggests dissatisfaction with the pace of the company’s turnaround.”
So what might Fernandez do differently to the departing Schumacher? We might just get a sense when Unilever presents its first-quarter trading update on 24 April with the new CEO at the helm.
In the meantime, Hayes’ team at Jefferies wrote: “The step-up from CFO to CEO by Fernandez will be liked by many investors. They like his direct approach but some may also see his style as somewhat maverick.”
