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Unilever shares gain after first quarter underlying sales beat expectations

Unilever continues to expect full-year underlying sales growth in the lower half of its multi-year 3% - 5% range
The consumer goods giant completed the sale of its spreads business in July last year

Unilever PLC (LON:ULVR) posted a 1.6% drop in turnover for the first quarter, reflecting the disposal of its spreads business, but underlying sales beat expectations. 

The consumer goods giant completed the sale of its spreads business, which includes the Flora and I Can’t Believe It’s Not Butter brands, to private equity firm KKR for £6bn in July last year.

READ: Unilever shares fall as final quarter sales miss expectations

The move was part of a bid to revive Unilever after rebuffing a £115bn takeover bid from Kraft Heinz.

The disposal dragged Unilever’s turnover down to €12.4bn in the first three months of 2019.

However, underlying sales increased 3.1% with volumes up 1.2% and prices up 1.9%. Analysts were expecting underlying sales growth of 2.8%. 

"The strength of Unilever’s brands and its geographical spread means the company can sell more stuff year on year, and charge slightly more for it too," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"The trick now for Unilever is to push its profit margins up to 20%, and it looks like it’s going to have to do that while it’s at the lower end of its 3-5% sales growth target."

Home care division and emerging markets drive sales growth

The home care division, which sells Domestos and Sunlight brands, was the key driver of growth with underlying sales up 6%, supported by demand for natural products including the new Omo Eco Active plant-based range.

Beauty and personal care – the unit that sells the Dove, Ponds and Sunsilk brands – delivered underlying sales up 5.2%, boosted by new product ranges.

Underlying sales in the food and refreshments business increased 1.5% as growth in ice-cream offset a flat performance in tea and savoury and a decline in dressings sales.  

Ice-cream sales were buoyed by the roll-out of a new Kinder range across Europe and new Magnum flavours.

In terms of regions, underlying sales in Asia, Africa, Middle East, Turkey, Russia, Ukraine, Belarus gained 6%.

The Americas grew underlying sales by 0.4% while Europe edged up 0.6%.

Unilever raised its quarterly dividend by 6% to €0.4104 per share.

Shares rose 2.4% to 4,487p in morning trading. 

Full year guidance unchanged 

"We have delivered a solid start that keeps us on track for our full year expectations,” said chief executive Alan Jope.

"Growth was led by emerging markets and was balanced between volume and price.”

He added: “For the full year we continue to expect underlying sales growth to be in the lower half of our multi-year 3% - 5% range, an improvement in underlying operating margin that keeps us on track for the 2020 target and another year of strong free cash flow.”

Jope took over the reins at the start of the year, replacing Paul Polman, who stepped down as chief executive after an investor revolt over the company's now-abandoned plan to move its headquarters out of the UK.

READ: Unilever CEO Polman to retire in wake of investor revolt over headquarters U-turn

Polman, who has been at Unilever for more than 10 years, will leave the group in July 2019 after he supports the transition process during the first half of the year.

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