By Brian Swint

As President Donald Trump ramps up his trade war with the rest of the world, there's a message for the CEOs of European companies that have struggled to keep up with U.S. peers: Time's up.

The recent market resurgence across the Atlantic, combined with years of investor frustration with underperforming shares and renewed interest from activists, means that executives now have nowhere to hide.

The most recent case in point: consumer goods conglomerate Unilever, which owns the brands for Dove soap, Persil detergent, and Ben & Jerry's ice cream. The U.K. firm last month replaced its chief executive officer Hein Schumacher after less than two years on the job.

The next CEO will be chief financial officer, Fernando Fernandez, who previously ran the company's health and wellbeing unit--one of its fastest-growing businesses. He quickly got to work, saying March 10 that Unilever will start disposing of smaller European food brands at a faster pace.

The stock has fallen 7% over the past six months, while the U.K.'s FTSE 100 is up 3% over that same period.

"While the Board is pleased with Unilever's performance in 2024, there is much further to go to deliver best-in-class results," the company said in announcing his departure on Feb. 25. Activist investor Nelson Peltz, who sits on Unilever's board and whose Trian fund has had a stake in the company since 2022, endorsed the change. Unilever declined to comment for this story.

Other companies that have recently parted with their CEOs include, French engineering firm Schneider Electric, which split with its CEO in November after just 18 months on the job. The company didn't respond to a request for comment.

Nestle, which owns more than 2,000 food brands from KitKat chocolate bars to Perrier sparkling water said goodbye to its leader Mark Schneider last August after eight years. That's before Trump was elected but came after the stock fell more than 20% over a two-year period having shined during the Covid-19 pandemic. Nestle declined to comment.

"Given the underperformance of European markets versus the U.S., there will inevitably be scrutiny on European corporates to deliver," said Martin Todd, portfolio manager for Sustainable Global Equity at Federated Hermes. "In the case of Unilever this looks to be a faster restructuring, at other companies it may be a simple re-listing, or a change in capital allocation, a strategic rethink."

There are more CEOs under pressure. Murray Auchincloss, of oil and gas firm BP, last month unveiled a "fundamental reset" of the company's strategy after trailing U.S. rivals Exxon and Chevron. Elliott Management has taken a stake in the firm and is pushing for more changes. BP declined to comment.

Until recently, European companies and their stocks had been broadly underperforming their peers across the pond. In the fourth quarter, the STOXX Europe 600 averaged a price/earnings ratio of 16, compared with 28 for the S&P 500.

There are several reasons why. European economic growth has been weaker than in the U.S. The valuation discount is driven, at least in part, by the fact that American markets were bigger and filled with investors more comfortable with risk. And Europe hasn't had the U.S. Magnificent Seven large-cap technology companies that did so much to help lift the S&P 500 more than 20% over each of the past two years.

But suddenly things have changed. Trump has said that Europe is on the list for tariffs after Mexico, Canada, and China. His withdrawal of the American security blanket from Europe and desire to quickly end the war in Ukraine has sent shockwaves through European governments, who now need to find significantly more money for defense. Germany is planning the biggest jump in state spending in decades, and the European Union says countries need to rearm.

That has bolstered European stock markets, which have been doing much better than the U.S. since the start of the year. Earnings have also been improving. Maximilian Uleer, a strategist at Deutsche Bank, notes that earnings for STOXX 600 companies excluding energy firms were up 10% in the fourth quarter, the best gains in two years and "after two years of stagnation, for 2025 we expect earnings to finally recover."

Professional services firms Alvarez & Marsal note that the percentage of all activist campaigns in Europe by American groups rose to 35% last year from 27% in 2023. "We anticipate seeing increased transatlantic campaigns through 2025 and 2026," with industrial and consumer firms coming under the most scrutiny, it said in a report published in January.

In short, the strong gains for European stocks during Trump's presidency have put lagging companies in the crosshairs of activist investors--and that means investors have the opportunity to profit as share prices spring back from past underperformance.

Write to Brian Swint at brian.swint@barrons.com

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March 13, 2025 01:00 ET (05:00 GMT)

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