Morning Note: Market News and Updates from Unilever and EssilorLuxottica.

Market News

Stronger US labour data tempered expectations for rapid Federal Reserve easing while keeping the broader policy pivot intact. Non-farm payrolls rose 130k in January, well above the revised 48k in December and the forecast of 70k. The data prompted traders to push back the next fully priced 25 basis points move to July from June, supporting Treasury yields and limiting further upside in bullion. The 10-year trades at 4.17%

Gold may climb to as much as $6,300 an ounce by the end of the year, lifted by its role as a preferred diversifier against geopolitical uncertainty and inflation risks, JPMorgan Private Bank said. It currently trades at $5,060 an ounce.

The US House voted to end Donald Trump’s tariffs on Canada as six republicans crossed the aisle, signalling growing anxiety over his economic agenda. The move increases pressure on Trump to change course just months before the midterms.

US equities were little changed last night – S&P 500 (flat); Nasdaq (-0.2%). Cisco fell post-market after its adjusted gross margin forecast for this quarter missed. In Asia this morning, markets also drifted lower: Nikkei 225 (-0.02%); Hang Seng (-0.8%). Hedge funds are flipping to bullish bets on the yen. Japan’s super-long bonds extended a rally.

The FTSE 100 is currently 0.2% higher at 10,492. Investment manager Nuveen will buy Schroders (up 28% this morning) for £9.9bn, ending more than two centuries of independence for the UK’s largest standalone asset manager. The UK economy grew less than forecast in the fourth quarter +(0.1%) falling short of the 0.2% consensus. The pound was little changed at $1.3635 and €1.1480.

Source: Bloomberg

Company News

Unilever has released solid 2025 full-year results. On the positive note, volume growth continued to improve, the operating margin came in ahead of expectations, and a new €1.5bn share buyback programme has been announced. The main dampener was the cautious guidance for 2026, to be at the bottom end of its 4-6% sales growth range. In response the shares are down 1% in early trading, giving up some of the gains made so far this year.

Unilever is one of the world’s leading suppliers of consumer goods, with annual sales of more than €50bn. Its products are low-ticket, repeatable purchases, with 3.4bn people using a Unilever brand every day. With unique routes to market, the company has an unrivalled emerging market presence and generates more than half of its sales from those parts of the world expected to experience strong long-term growth in demand. In particular, the group’s 62% holding in India-listed Hindustan Unilever Limited provides exposure to the largest consumer goods company in India.

Following the recent demerger of Magnum, its Ice Cream unit, in which it has retained a 19.9% stake, Unilever is focused on four fairly equally-weighted Business Groups: Beauty & Wellbeing (25% of 2025 sales), Personal Care (26%), Home Care (23%), and Foods (26%).

Under the group’s Growth Action Plan (GAP) 2030, growth will be driven by 30 Power Brands (including Dove, Hellmann’s, and Domestos) that account for 78% of turnover and operate across 24 Business Group-led markets, which represent nearly 85% of turnover. The main focus is to generate more sales in the US, India, the beauty sector, premium markets, and the e-commerce channel. The remaining 100+ smaller markets will be run on a ‘One Unilever’ basis to benefit from scale and simplicity, further enhancing the group’s focus.

Overall, Unilever is aiming to deliver mid-single digit underlying sales growth, supported by underlying volume growth of at least 2%. The company expects modest underlying operating margin improvement, driven by gross margin expansion through operating leverage and productivity improvements. The cost programme is running ahead of plan and delivered an aggregate €670m of savings by the end of 2025 on the way to an €800m end-2026 target. The company is also targetting 100% cash conversion over time and has a ROIC ambition in the high teens.

Back to today’s results in which all figures are on a continuing basis, which excludes Ice Cream. As expected, market conditions have been challenging.

In 2025, turnover fell by 3.8% to €50.5bn. Underlying sales growth (USG) – adjusted for the impact of currency headwinds (-5.9%) and net disposals (-1.2%) – was 3.5% and within the group’s 3%-5% range. The result was driven by underlying price growth of 2.0%, while volume rose 1.5%, with sequential improvement through the year led by volume. The 30 Power Brands, which account for over 78% of revenue, grew by 4.3%, with volume up 2.2%.

In the final quarter, USG rose by 4.2%, slightly above the market forecast of 3.9%, with volume up by an encouraging 2.1%.

In emerging markets, USG was 3.5% in the full year, with both Indonesia and China seeing a return to growth in the second half following the resolution of distribution issues. Developed markets grew by 3.6%.

All four businesses reported growth:

-          Beauty & Wellbeing (+4.3% USG to €12.8bn) – led by double-digit growth in Wellbeing, Dove and Vaseline.

-          Personal Care (+4.7% to €13.2bn) – supported by market share gains, premium innovations, and commodity-driven price increases.

-          Home Care (+2.6% to €11.6bn) – led by volume growth.

-          Foods (+2.5% to €12.9bn) – with growth driven by emerging markets.

The gross margin was up 20 basis points to 46.9%, reflecting continued efforts to drive structural gross margin improvements and benefitted from higher-than-expected net productivity and procurement savings. This fuelled increased brand and marketing investment, up 10 basis points to 16.1% of sales.

In line with guidance, the group generated an improvement in underlying operating margin in the year, up 60 basis points to 20.0%. This was better than expected and driven by disciplined overhead management, with productivity programme delivering ahead of plan, with a cumulative €670m of savings by end of 2025.

Underlying operating profit fell by 1.1% to €10.1bn, in line with the market forecast, while underlying EPS rose by 0.7% to €3.08.

Free cash flow fell by €0.4bn to €5.9bn, reflecting Ice Cream separation costs and higher working capital. However, cash conversion was 100%, in line with the target of ‘around 100%’. Net debt fell from €24.5bn to €23.1bn, 2.0x EBITDA and in line with guidance of around 2x. The company completed its €1.5bn share buyback programme in May and has today announced a new €1.5bn programme

In addition, the quarterly dividend has been increased by 3% to €0.4664, although in Sterling terms it is up 7.3% at 40.52p.

The group’s bolt-on M&A strategy is focused on premium assets in the beauty, personal care, and well-being space, particularly in the US with potential to ‘travel’ internationally. The company is looking for digitally native brands that show superior functionality, strong clinical background, and strong presence in online commerce. In addition to the Ice Cream demerger, the company has closed or announced 10 transactions since start of 2025, with bolt-on acquisitions including Dr. Squatch in North America and Minimalist in India, alongside disposals of non-core and local brands, primarily in Foods.

Looking to 2026, the company expects underlying sales growth to be within its multi-year guidance range of 4% to 6%, with at least 2% underlying volume growth. 2026 growth is expected to be at the bottom end of the range reflecting the slower market conditions. The company also anticipates a modest improvement in underlying operating margin for the full year versus 20.0% in 2025 as the remaining €130m of productivity savings are delivered.

Source: Bloomberg

Yesterday evening, EssilorLuxottica released its 2025 full-year results that were well above market expectations. The company’s new products enjoyed continued strong momentum, in particular booming sales of the Meta smart eyewear products. Revenue growth accelerated to 18.4% in the final quarter, with the strong double-digit momentum continuing in January. Despite headwinds from US tariffs and investment in new innovation, the company generated a better-than expected margin and record free cash flow. In response, the shares have been marked up by 7% as the company hits a structural inflection point in the move from a luxury brand to med-tech/AI hardware supplier.

EssilorLuxottica is the global leader (with a 25% share) in the eyecare and eyewear industry with exposure to the design, manufacture, and distribution of ophthalmic lenses, prescription frames, and sunglasses. We believe the long-term outlook for the industry is positive, driven by an ageing population, digital eye strain, a growing emerging market middle class, increased education regarding sun protection, and the growth of eyewear as a fashion and technology accessory. By 2050, uncorrected poor vision is predicted to reach epidemic proportions with over 50% of the world’s population expected to suffer from myopia (short-sightedness), many with serious vision-threatening side effects and long-term implications.

The company’s competitive advantage is based on its scale, portfolio of premium brands (such as Ray-Ban and Oakley), product innovation, flexible manufacturing base, quality service, routes to consumer, and partnerships. Essilor owns licences for some of the best-known luxury brands, including Chanel, Prada, Armani, and Jimmy Choo. The group also owns a majority interest in GrandVision (GV), a global leader in optical retail, ownership of which expands its global retail footprint (to 17,750 stores) and reduces the competitive risk of retailer consolidation.

In addition to underlying market trends, growth is being driven by strong innovation across the existing product line and in new markets. The company’s myopia management product Stellest has clinically demonstrated efficacy in slowing down myopia progression in children. Following strong growth in China, the product has now been launched in the US. In 2025, the portfolio generated growth of 22% in revenue worldwide.

In the smart glasses category, the company has a long-term partnership with Meta Platforms to develop multi-generational smart eyewear products. The collection, which includes Ray-Ban Meta and Oakley Meta Vanguard, is performing better than expected (up 3x to 7m units in 2025) with demand outpacing supply. The company has said that in time wearables will be margin accretive given the increased level of quality lenses in the products and the addition of service revenue. The relationship with Meta has been cemented following the acquisition of a 3% stake in Essilor (worth €4bn), with the prospect of a further investment.

The company has also diversified into the hearing solutions market with a disruptive new technology (i.e., lenses with acoustic technology) to meet the needs of the 1.2bn consumers suffering from mild to moderate hearing loss. The audio component is completely invisible, removing a psychological barrier that has historically stood in the way of consumer adoption of traditional hearing aids. The product (called Nuance Audio) has now been rolled out in the US and Europe.

The company has enhanced its presence in the med-tech space through several acquisitions: Heidelberg Engineering (diagnostic solutions, digital surgical technologies, and healthcare IT for clinical ophthalmology); Espansione (design and manufacturing of non-invasive medical devices for the diagnosis and treatment of dry-eye, ocular surface and retinal diseases); Optegra (ophthalmology platform for eye hospitals and diagnostic facilities); PUcore (monomers used in the production of high index ophthalmic lenses), and Ikerian AG (operating under the RetinAI brand, specialising in AI and data management in eyecare).

Finally, Essilor also owns streetwear brand Supreme, known for its lifestyle apparel, footwear, and accessories. The company runs a digital-first business and 17 stores in the US, Asia, and Europe. At first glance, the $1.5bn acquisition looks like a diversification from the group’s core business – the rationale is that it will provide a direct channel to an audience that is very difficult to reach and adds a margin accretive business to the group. In particular, the company intends to use Supreme’s model to test exclusive, high-value AI-eyewear releases to a younger, tech-native demographic. We have some reservations and will watch to see if the move ends up being a misallocation of capital.

The overall business mix is now optical (c. 75% of total revenue), sun (23%), with the remainder from Apparel, Footwear and Accessories (including Supreme brand), smart-glasses, med-tech devices. These new categories are expected to account for a third of sales by 2034.

Back to the results. During 2025, revenue grew 11.2% at constant exchange rates (CER) to €28.5bn. This was not only ahead of the market forecast but also the above the top-end of the long-term guidance for 2026 of €27bn–€28bn.

Growth in the second half (+15.2%) sharply outpaced the first half (+7.3%), boosted by an acceleration of the AI-glasses business developed in partnership with Meta and the Stellest myopia management product. In the final quarter, revenue rose by 18.4% at constant exchange rates (CER) to €7.6bn. This was an ‘organic’ performance given that the acquisitions of Supreme and Heidelberg were included in the comparative quarter in 2024.

EssilorLuxottica is a vertically integrated player with two distribution channels. Professional Solutions (PS) includes the supply of products and services to third-party eyecare professionals (i.e., wholesale).

In 2025, revenue grew by 12.2% at CER to €13.6bn, while Q4 growth was 29.2%.

Direct to Consumer (DTC) includes the sale of products and services directly to end consumers (i.e. retail), comprised of brick-and-mortar stores and e-commerce platforms. In 2025, revenue grew by 10.3% at CER to €14.9bn, while Q4 growth was 9.3%.

By geography, all the broad regions generated strong growth. North America, the group’s largest region (45% of sales), grew by 11.6% at CER in the year and by a stellar 23.8% in Q4. Elsewhere, full-year growth was: EMEA (+11.8%); Latin America (+7.6%); and Asia Pacific (+10.1%).

Over time, the company has been able to convert its revenue growth into margin expansion, leveraging its vertically integrated business model and successfully absorbing the inflationary pressures on most cost items.

The group’s high US revenue exposure versus minimal sourcing in the country means Essilor is exposed to tariffs, particularly for frames which are made in China and exported to the US. In response, the company is implementing two broad measures. Firstly, diversification of the supply chain in a way that doesn’t compromise product quality. Secondly, price hikes were implemented during the year, the benefit of which is currently flowing through.

Gross margins are high, albeit they fell by 260 basis points in 2025 to 60.9% due to the US import tariff headwind and the higher weight of the AI-glasses revenue, both more pronounced in the second half, as a whole just partly offset by the price-mix tailwind. The adjusted operating margin fell by 70 basis points at CER to 16.0%, albeit ahead of the market forecast of 15.5%. As a result, operating profit grew by 6.8% at CER to €4,459m.

The business generates strong free cash flow – up 16% to a record €2.8bn in the year – and is financially robust. Net debt (including lease liabilities) fell slightly from €10.97bn to €10.85bn, 1.7x EBITDA. A dividend of €4.00 has been proposed, 1.3% higher than last year, equating to a 1.3% yield.

Looking forward, on average, over the next five years, at constant exchange rates, the company is planning to deliver a ‘solid growth’ of its total revenue and a ‘broadly aligned growth’ of the adjusted operating profit. The company didn’t provide specific margin guidance for 2026 but said the result would be driven by a combination of the full-year impact of tariffs, an ongoing currency headwind, mix effect of the growth of AI glasses, growth of Stellest in the US, and the roll-out of the hearing aid business.

Source: Bloomberg