Unilever’s combining Foods with McCormick would boost sales growth but hit margins, UBS says Proactive uses images sourced from Shutterstock
Unilever PLC’s (LSE:ULVR) reported spin-off its Foods division into a combination with US spice group McCormick would boost the FTSE 100 company’s sales growth profile but dent its profitability, according to analysts at UBS.
The bank calculates that separating Foods would strip out 26% of group revenues and 29% of operating profit, based on 2025 figures, while pushing the group’s underlying operating margin down by 0.8-1 percentage point.
This would be a meaningful hit, given that Foods is actually Unilever’s most profitable division, running at a 22.6% margin against a group average of 20%.
The flip side is that Foods has been a persistent drag on sales volume growth, delivering flat underlying volume growth over the past eight years.
Its removal would lift the group’s underlying sales growth by 20-40 basis points and volume growth by 70-90 basis points.
UBS flagged the three key challenges with the transaction that it first raised last week when rumours of the Foods spin-off were more woolly.
Analyst Guillaume Delmas said the Foods arm is likely to attract a lower valuation than the rest of Unilever, given modest growth prospects and headwinds from the growing use of GLP-1 weight-loss drugs.
He sees potential dis-synergies given shared distribution infrastructure with the rest of the group, and adds that removing Foods would reduce Unilever’s exposure to higher-margin, lower-capital-intensity operations.
UBS rates Unilever a ‘sell’ with a 4,440p price target.