Unilever plc (LON:ULVR) overcame a slump in its margarine business to deliver a 3% increase in first half underlying sales.
The consumer goods giant posted a 5.5% rise in turnover to €27.7bn, including a positive currency impact of 1.7% from a weaker pound against the euro.
A foreign exchange benefit of 2.6% helped to lift underlying earnings per share by 14.4% to €1.13.
Underlying operating margin edged up 180 basis points to 17.8%, boosted by higher margins in ice cream brands Ben & Jerry’s and Magnum as well as Lipton tea.
"Our first half results show continued growth well ahead of our markets and a substantial step-up in profitability despite the persisting volatile global trading environment,” said chief executive Paul Polman.
Polman said the company is on track for another year of underlying sales growth of between 3% to 5% with the second half expected to be boosted by investments in brand and marketing initiatives.
Unilever also expects an improvement in underlying operating margin this year of “at least 100 basis points and strong cash flow”, Polman added.
A second quarterly dividend of 35.85 euro cents per share was declared, the same as the first quarter dividend.
READ: Unilever raises quarterly dividend by 12%, but underlying sales growth below guidance
Unilever to sell spreads business
The owner of Marmite and Dove soap delivered growth in all its categories apart from spreads, including personal care, home care and foods.
Unilever is preparing to exit the spreads business, which includes the Flora and I Can’t Believe It’s Not Butter brands, through a sale or de-merger. Preparations to auction the division are “well underway”, the company said.
The personal care division delivered growth despite experiencing challenging market conditions in some of its key markets, such as India, Brazil and Indonesia. An economic crisis hurt consumer spending in Brazil, while the introduction of a goods and services tax in India saw trade stock levels thin and public holidays meant fewer trading days in Indonesia.
In Europe, consumer demand also remained weak due to competitive pressures in home care and a tough retail environment.
Restructuring plans on track after failed Kraft Heinz takeover, says Unilever
Nevertheless, Unilever said it its restructuring plan, dubbed ‘Connected 4 Growth, has been delivering ahead of expectations since launching in 2016.
“The transformation of Unilever into a more resilient, more competitive and more profitable business is accelerating,” said Polman.
“C4G is making our business even more agile, less complex and increasingly responsive to fast-changing consumer trends. The resulting increase in innovation speed and effectiveness will allow us to grow ahead of market.”
Unilever has been stepping up its efforts to overhaul the business in the wake of a failed takeover attempt by Kraft Heinz earlier this year.
Steve Clayton, fund manager of Hargreaves Lansdown Select Funds, said the company’s strategy to raise margins has paid off after coming under pressure following the Kraft Heinz bid.
“Kraft Heinz may have gone away, but Unilever know they cannot relax and investors expect them to raise their game," he said.
“The Connected 4 Growth programme is designed to drive margins forward, whilst their €5bn buy-back programme should keep EPS moving ahead of underlying profit growth."
Liberum repeats 'hold' rating on Unilever
Liberum reiterated a 'hold' rating and target price of 3,870p, saying the shares appear to be fully priced. The broker added that the group's forecasts are in line with its estimate for oganic sales growth of 4% per year over fiscal years 2017 to 2020.
"While more aggressive EPS growth underpins the shares, failure to deliver on lifted expectations could lead to a pull-back," Liberum warned.
"In addition, the company has set bold margin targets that could be unsustainable in the long run. In our view, the risk / reward outlook for the shares is now more balanced."
Shares in Unilever climbed 0.50% to 4,335.50p in morning trading.