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Investors are scooping up shares of Unilever PLC (UL +2%) today after the global conglomerate, boasting familiar products in beauty, personal care, home care, nutrition, and ice cream, announced an accelerated growth action plan. Unilever outlined several initiatives aimed at delivering productivity gains, including separating its Ice Cream unit and reducing its headcount.

The company anticipates its actions will result in around €800 mln of total cost savings over the next three years, more than overcoming estimated operational dis-synergies from offloading its Ice Cream division. Also, following the separation, which is expected by the end of 2025, Unilever expects to deliver mid-single-digit underlying sales growth (at the high-end of its previous +3-5% forecast) and moderate margin improvement (unchanged) in FY24.

Management stated that Ice Cream would be better off on its own due to its differentiated business model compared to the rest of its portfolio. Given the scope of Unilever's Ice Cream business, boasting nearly €8.0 bln in sales, it would be one of the single-largest standalone ice cream companies globally, boasting several top brands, such as Ben & Jerry's and Magnum.

• Unilever's Ice Cream business has been a laggard recently, delivering underlying sales growth of just 2.3% yr/yr in FY23, well below the next-worse category, Home Care, at 5.9%. Even though management mentioned that it conducted significant changes to its Ice Cream business to address the underperformance, spinning it off is likely the best course of action.
• Beauty & Wellbeing, part of Unilever's top four other businesses, which will each comprise around a quarter of total sales following the planned ice cream separation, has been benefiting from healthy beauty demand. Underlying sales growth in FY23 outpaced total growth of 7.0%, expanding by 8.3% yr/yr. Similarly, Unilever's other businesses are enjoying favorable demand dynamics, which have unfortunately been clouded by weak Ice Cream sales.
• Operating margins were a weak point in FY23, contracting by 150 bps yr/yr to 16.4%. Even though Unilever is not anticipating exceptional margin growth this year, its productivity program should begin to boost its margin profile over a longer timeframe. At the same time, by cutting expenses elsewhere, Unilever can pour more resources into R&D, a vital component of a name-brand household product manufacturer, as innovation is key to differentiating its products from private labels.

Unilever has been delivering underwhelming growth lately as the inflationary environment squeezes margins and shifts consumer tastes toward lower-priced alternatives. As a result, its shares have been stuck in a rut, sliding by over 10% within the past five years and flat since February 2022. However, Unilever's updated growth plan may offer the cure to its ailing stock price. The company also plans to commence a €1.5 bln share buyback program in Q2, and its most recent quarterly dividend amounted to an attractive 3.7% annual yield. As such, we believe UL is worth a look, as the worst might be in the rear-view mirror.