It is a mistake to blindly follow any famous investor, but that doesn't mean you shouldn't pay attention to what they are doing. That's particularly true with Nelson Peltz, an activist investor who prefers to work with the companies in which he invests. He has a long track record of helping off-track companies get back on the growth path. Right now, he's working with consumer staples giant Unilever(NYSE: UL). Here's why you should care.
The Procter & Gamble example
The Unilever story actually starts with one of the company's largest peers, Procter & Gamble(NYSE: PG). That's because Peltz famously helped P&G, as it is more commonly known, revamp its business. The approach was fairly straightforward. Cut costs, tie pay to performance, and slim down the business to focus only on the company's most attractive consumer staples brands.
Image source: Getty Images.
That had a huge impact on the company, with P&G performing extremely well even when inflation rose rapidly coming out of the coronavirus pandemic. Notably, the dividend yield hit a peak of around 4% in 2018 but is now only around 2.4% even though the the Dividend King has increased its dividend each year. Anyone who invested alongside Peltz here has done very well, though it is worth noting that his attention has moved on to other investments at this point.
What's most notable here, however, is that P&G was reluctant to work with Peltz. Current Peltz investment Unilever was far more welcoming.
What's going on with Unilever?
Unilever is one of the largest consumer staples companies on Earth, with products that span from soap (Dove) to food (Hellmann's). Although it is a big player in developed markets, it also has material exposure to emerging markets, where long-term growth is expected to be stronger.
Unilever's dividend yield today is 3.3% or so, which is toward the higher side of its historical yield range. Some investors have complained that Unilever needs to reset its business, which sounds very familiar to what was being said about P&G not too long ago.
And that's where Nelson Peltz comes in. He is pushing Unilever to do exactly what P&G did: cut costs, tie pay to performance, and slim down the business to focus only on the company's most attractive brands. Unilever added Peltz to its board and has clearly been listening to his advice, selling off slower-growth businesses (tea) as it buys higher-growth brands (Liquid IV). It is currently working to split off its ice cream operations, a division that has a cost structure vastly different from the rest of the company. And management has been realigned to create a more nimble overall business.
Notably, as Unilever's inflation-driven price increases have slowed, its volume has started to come back, rising in each of the past two quarters. That hints strongly that the company's efforts to turn its business around are working. Management's efforts to clean up the business, however, are still ongoing (noting that the ice cream split isn't completed yet).
So there's likely to be more opportunity ahead for Unilever to continue improving its financial results. With Peltz helping to reshape Unilever the way he helped P&G do the same thing, it is reasonable to expect Wall Street to get on board, too, and afford Unilever a higher valuation over time.
The early results are good
Unilever isn't a great investment just because Nelson Peltz is on the board. The company has a solid foundation of globally dominant brands and a long history of success behind it. It just needed to fine-tune its approach, which is really all that billionaire Peltz is pushing to do. Similarly subtle changes did wonders for P&G, and it seems reasonable to believe that the same approach will work for Unilever, noting that the early indications of a business turnaround seem pretty strong.
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Reuben Gregg Brewer has positions in Procter & Gamble and Unilever. The Motley Fool recommends Unilever Plc. The Motley Fool has a disclosure policy.
