Unilever

Unilever reported strong second-quarter results, with underlying sales growth of 5.8% and volume growth of 5.5%. It upgraded full-year guidance, expecting to land firmly within the 4% to 6% sales growth target, with a larger contribution from volume. Shares rose 6.5% in early trading on July 28.

Why it matters: Unilever's renewed focus on volume-led growth, backed by heavier brand and marketing investments, is starting to show clearly in the numbers. Second-quarter volume growth was substantially above company-compiled consensus of 2.5%. Emerging markets delivered an outstanding performance, with volume growth of 7.4% and market share gains. North America also posted strong volume growth of 4.4% driven by personal care and beauty and wellbeing, resulting in market share gains in an otherwise soft consumer environment. Pricing is expected to play a larger role in the second half and become the primary driver of Unilever's projected 4% to 5% underlying sales growth, as the company offsets rising input cost inflation of EUR 550 million, in addition to the EUR 300 million recorded in the first half.

The bottom line: We confirm our GBX 5,200/EUR 60/$70 fair value estimates for wide-moat Unilever. At current levels, we view shares as fairly valued, trading in 3-star territory. While volume growth is likely to normalize in the coming quarters, we believe Unilever has turned the page on its historical volume underperformance. The strong second-quarter results strengthen our confidence that the company can consistently achieve its midterm target of at least 2% volume growth, supporting market share gains and the operating leverage needed to fund higher investments for its portfolio shift toward beauty and wellbeing and personal care. The corrective actions taken over recent quarters in emerging markets are paying off. In India, homecare and haircare both reached record market shares in the second quarter, reinforcing Unilever's leadership position.

Our fair value estimate for Unilever’s ADR is $70. This implies a euro/dollar rate of 1.14, 2026 multiples of 20 times earnings and 11 times enterprise value/EBITDA, a free cash flow yield of 3%, and a dividend yield of 3%. These valuation multiples are broadly in line with Unilever’s own recent historical valuation range.

Over the last few years, Unilever has successfully led pricing while minimizing volume impact, a result of good demand elasticities and strong brand positioning. Over our explicit forecast period to 2030, we expect organic sales growth of 3.9%, comprising 2.4% volume growth and 1.5% from pricing. We expect the beauty and well-being business group to be the largest contributor, with an organic sales growth forecast of 5%, followed by personal care at 4.2%, homecare at 3.5%.

Medium-term EBIT margin is another important valuation driver. The company targets modest improvements in operating margin, supported by gross margin accretion from the ongoing productivity program and operating leverage. We forecast a midcycle EBIT margin of 19.4%, which represents an increase of around 40 basis points compared with 2024, excluding ice cream and food. This includes a 30-basis-point reduction in the overhead run rate as a percentage of sales, half of which we assume will be reinvested in brand and marketing support, which we expect to reach 16.5% of sales by 2030, up from 15.5% in 2024.

We discount our cash flow forecasts at 6.9% and assume a 4.5% stage-two EBI growth rate, which we think appropriately balances Unilever's emerging-market presence and advantaged category exposure.

We assign Unilever a wide Morningstar Economic Moat Rating, underpinned by intangible assets and a cost advantage. Intangible assets reflect the company’s entrenched position with retailers and solid brand equity across key categories.

Unilever is a leading global manufacturer of household and personal care products, operating in 190 countries across categories including deodorants, skincare, haircare, and laundry and surface care. More than half of group revenue comes from emerging markets, and its diversified portfolio protects it from category-specific or regional volatility, making long-term aggregate value destruction unlikely. Returns on invested capital averaged 16% over the past five years, and we expect that average to rise to 18% over the next five years, comfortably above our 7.2% cost-of-capital estimate. We believe Unilever is well-positioned to earn economic profits for at least two decades, consistent with a wide moat economic rating.

Supply chain entrenchment is an important source of competitive advantage for Unilever. Its scale, top-selling brands across categories, and considerable resources make it a key partner for retailers across both developed and emerging markets. In developed markets, category-captain arrangements enable it to share proprietary sales data and shape shelf space, promotions, and product mix in ways that boost both parties' economics, creating a self-reinforcing relationship.

In emerging markets, where the retail environment remains highly fragmented and dominated by traditional trade, Unilever’s supply chain entrenchment is arguably even more formidable. Unilever has spent decades investing in emerging markets like India, Indonesia, and much of sub-Saharan Africa, building a widespread distribution infrastructure that new entrants can’t easily replicate. Its subsidiary Hindustan Unilever is India's largest CPG firm, with direct relationships across more than nine million small retailers, backed by digital ordering platforms, micro-financing, and training programs (including one that has equipped over 200,000 rural women in India to sell its products), reaching an estimated 9 in 10 households. That entrenchment shows up in profitability: India carries a 22% EBIT margin, above the group average.

Even a company deeply embedded in local supply chains must continually invest to retain consumers and stay relevant. Customer acquisition costs, including marketing and R&D, are rising as new direct-to-consumer models lower entry barriers for niche competitors. We expect Unilever's advantages to persist because distribution networks built over decades are difficult to replicate, and the company is defending its brand position accordingly: marketing spend is rising to 15%-16% of sales from 13.5%, plus a further 1.6% of sales on R&D, shifting toward targeted social media channels to counter digitally native challengers.

We believe Unilever has strong brands in personal care, beauty and well-being, and homecare, where product differentiation supports brand equity. We assess brand strength using Morningstar’s CPG Manufacturers Brand Strength Framework, which scores pricing power, product-consumption visibility, consumer reluctance to try unbranded alternatives, and industry structure.

Our analysis of recent pricing trends suggests Unilever has broadly passed on price increases in line with inflation, with price elasticities similar to or lower than those of close peers. At the group level, pricing increased by an average of 5.3% per year between fiscal 2021-25, while volumes grew 1.0% on average over the same period.

Further, the industry structure supports above-average brand strength across multiple categories. Unilever leads global deodorants with a 34% share, nearly triple P&G's 12% and Beiersdorf's 11%; bath and shower with roughly 19%, about triple its nearest rivals, including 36% in India versus the next player’s 10%; and laundry care with a stable 15%, ranking second behind P&G as the top three control half the market. Private-label penetration remains low and largely flat —about 2% in deodorants, 6% in bath and shower, and below 5% in laundry—suggesting limited consumer substitution toward generic alternatives.

The company's push into prestige beauty (roughly 8% of group sales, scaled from a EUR 1.7 billion revenue base to EUR 4 billion via acquisitions such as Dermalogica and Tatcha) supports this trajectory; these brands, which also benefit from conspicuous-consumption dynamics among affluent buyers, have been scaled through Unilever's existing distribution and marketing infrastructure, and we estimate they generate high-teens returns on invested capital despite typically high acquisition multiples.

Beyond intangible assets, we believe Unilever enjoys a meaningful cost advantage over many competitors, particularly smaller regional players, through its scale, supplier relationships, flexible supply chains, and operational efficiency. Consolidated global purchasing gives Unilever substantial procurement power, enabling it to source raw materials such as palm oil, surfactants, and packaging materials at competitive prices. In categories where it leads, such as deodorants, manufacturing scale significantly lowers unit costs, helping Unilever compete more effectively on price. This is reflected in a direct operating margin—which excludes discretionary marketing and R&D spend—of roughly 38.5%, in line with wide-moats P&G and Colgate-Palmolive.

The main risk to our wide moat rating is a renewed loss of share to nimble, digitally native challengers in beauty and personal care, which we think is the same dynamic that pressured returns before the recent turnaround. A resumption of that share loss, despite the stepped-up brand investment, would lead us to reconsider the wide-moat rating.

Unilever has experienced a step-up in performance in recent years, given productivity initiatives, heightened focus on execution, and business reinvestment in key areas.

Unilever has one of the largest emerging market footprints of all the global consumer staples manufacturers, which should be a long-term volume driver for the business.

Unilever’s move from a matrix structure to four business groups, each responsible for the top- and bottom- line delivery in the top 24 markets, should reduce complexity, sharpen execution and drive more scale in innovation.

Unilever operates in some highly competitive categories, where consumers are increasingly navigating toward local or niche brands, challenging the company’s ability to consistently grow volumes at a higher level than it historically has.

Higher marketing and innovation investment, though necessary, could pressure operating margin if volume leverage or premiumization fails to offset the rising customer acquisition costs.

Although Unilever's emerging-markets exposure should be a long-term volume driver, it is likely to pose some near-term volatility, especially with regards to currency.