Is there opportunity on offer for these 3 consumer goods giants?

Fast-moving consumer goods (FMCGs) have had to wrestle with high levels of inflation, and many of these have passed on costs to consumers in the form of higher prices.

With inflation seemingly back under control, these companies need to find new ways of driving the top line higher if they want to keep growth targets alive.

That won’t be easy, given that economic uncertainty is likely to remain throughout 2025.

Here are three companies in the trenches, positioned to rise to the challenge.

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While broader inflation has eased, Nestlé faces a sting from soaring cocoa and coffee bean prices, forcing selective price hikes. This sets the stage for a 2025 of muted organic growth and squeezed margins.

Zooming out, Nestlé boasts an enviable stable of top-tier brands – many holding number one or two spots in their categories. Known for KitKats, confectionery is just a sliver of its business, dwarfed by higher-growth areas like coffee, pet care, and health science.

Recent portfolio streamlining underscores this shift. Factory count is down, and underperforming units have been axed – a trend likely to continue. This should bolster medium-term profits once headwinds subside.

The balance sheet looks steady, with cash flows underpinning the dividend, though debt is hovering near the upper limit of comfort, leaving little room for extra shareholder returns.

There’s also a 20% stake in L’Oréal, valued at roughly CHF 35bn, that offers a potential cash lifeline if ever needed.

Nestlé’s powerhouse brands and presence in dynamic markets provide a strong foundation, and its medium-term growth plans signal promise.

The valuation has improved in recent months, but still reflects some key challenges ahead. Near-term hurdles like rising input costs and sluggish volume recovery put pressure on management to nail execution, adding risk.

Recent sales growth has been driven by price hikes, as the strength of its brands has allowed the group to pass higher costs straight on to consumers. That’s more than offset some recent weakness in volumes, which we’re cautiously optimistic will pick back up thanks to its digital efforts in Enterprise Markets.

These Enterprise Markets are higher-growth regions like South America, Africa, and parts of Asia.

The outlook here is promising, having already delivered double-digit growth in Hair Care, Oral Care and Grooming over the last few years. There’s a big opportunity if P&G can keep nailing execution here.

Despite having already trimmed a lot of fat, P&G sees more room for improvement.

The plan is to upgrade its supply chains, delivering greater flexibility and scalability. Alongside significant productivity savings in media, the group’s hoping to deliver around $2bn of annual cost savings.

The balance sheet is in good shape, and with 68 years of consecutive dividend increases under its belt, P&G’s established itself as a ‘Dividend King’. Currently, there’s a respectable 2.5% forward dividend yield on offer. But as always, yields are variable and no dividend is ever guaranteed.

P&G’s strong market position, pricing power, and digital transformation should help it navigate near-term cost pressures. These strengths are reflected in the valuation, which now sits a touch above the long-run average. That doesn’t look too demanding to us, but it does increase the risk of ups and downs.

Beyond its core markets, Unilever’s presence in emerging markets provides an additional long-term growth driver. As consumer demand rises in these regions, the company is well-positioned to capitalise on shifting trends and expanding economies.

That said, there are still challenges ahead.

Its plan to spin off its large ice cream business could be a short-term hurdle. While the move is intended to simplify the company’s focus, the transition will need careful execution to avoid disruption.

Unilever’s refreshed approach is building momentum. A clear focus on its strongest brands, improving profitability, and expansion in high-growth markets all paint a positive picture. But the broader market is looking a little weaker in the early part of the year, teeing up a tricky period ahead.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.

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