Unilever PLC (LSE:ULVR) shares rallied close to 6% this morning as investors shrugged off missed quarterly guidance and turned their attention to the prospect of greater profitability later in the year.
Soaring to record highs at the open, the consumer goods giant said its underlying operating margin had increased by 250 bps to 19.6%.
This allowed the FTSE 100 firm to post operating profits of €6.1 billion for the first half, marking a 17.1% jump year-on-year and putting it on track to achieve an 18% margin for the full year.
Additionally, gross margins increased by 420 bps, which management said “fuelled increased investment behind our innovations, and resulted in a step-up of our profitability.”
Unilever said the margin progression was supported by “volume leverage, mix and net productivity”, but warned it would not repeat in the second half, where it faces tougher comparatives.
In terms of quarterly results, sales lifted by 3.9%, behind analysts’ estimates of 4.3%, as customers continued to feel the impact of high inflation and interest rates.
The owner of brands such as Dove, Cif and PG Tips, is in the midst of the sale of its £15 billion ice cream business, which owns Ben and Jerries and Magnum.
A sale is expected to support the group’s undergoing cost-cutting scheme, which aims to remove 7,500 jobs from the company’s international operations.
Unilever said in a statement: “The implementation of a comprehensive productivity programme and the separation of Ice Cream is key to delivering on that commitment and we are progressing at pace.”
Analysts at Barclays reiterated its overweight rating for the stock and while it agrees Unilever's margin expansion is unsustainable it was impressed by the group's volume leveraging, premiumisation and stock-keeping rationalisation.