Unilever will deliver 5% underlying sales growth in its second quarter update on 25 July, according to Jefferies though it admits it is below consensus with its estimates.
One reason is that the US bank expects the price hikes that have generated most of the recent growth in revenues will tail off quickly as wholesale costs start to turn down.
For the first half of the trading year, operating margins should be around 16% also behind the pack overall with Jefferies seeing more volume/mix and less from pricing.
On the plus side, Jefferies’ commodity estimates point to “significant raw material deflation” in the second half of the year but while gross margin will jump 1.1% over the twelve months, nearly all of this will be reinvested in brand and marketing.
Unilever remains Jefferies’ key pick in European Foods & HPC, nonetheless.
“We continue to see attraction in the combination of gross margin expansion and higher brand investment helmed by new chief executive Hein Schumacher.”
Buy is the bank’s investment view with a 4,055p target.