logo-loader
viewUnilever PLC

Unilever sales growth softer than hoped but pricing and margins are sweeter

The consumer goods colossus increased organic sales 3.5% in the second quarter, up from 3.1% in the three months of the year but short of the consensus forecast of 3.7%

Unilever ice cream
Weather affected ice cream sales in Europe and North America

Unilever PLC (LON:ULVR) improved sales less than the market was expecting in the second quarter but margins continue to pick up.

The consumer goods colossus increased organic sales 3.5% in the most recent quarter, up from 3.1% in the three months of the year but short of the consensus forecast of 3.7%.

READ: Unilever shares gain after first quarter underlying sales beat expectations

Underlying sales volume grew 1.2%, which was less than the 1.9% that City analysts had pencilled in, while pricing continued to ascend, up 2.3% in the three months to June compared to consensus estimate of 1.7%.

Growth across the Unilever’s various end markets was mixed, with weather affecting European and North American ice cream sales and overall developed markets were weaker.

Emerging markets continued their good momentum, particularly in China and South East Asia, while India’s strong growth moderated as expected and Argentina’s hyperinflation weighs on consumer demand.

Margins improving

For the first half as a whole, underlying sales growth of 3.3% was accompanied by a pick-up in underlying operating margins to 19.3% from 18.8% a year ago, leading to underlying operating profits of £5.1bn, up 1.8% and slightly ahead of forecasts.

Underlying earnings per share of €1.27 was up 5% on this time last year, but slightly short of the €1.29 expected.

Chief executive Alan Jope, who took the top job after predecessor Paul Polman got the boot along with his attempt to move the group's HQ to Holland, reiterated the guidance for the full year of delivering underlying sales growth in the lower half of the long-term 3%-5% range, with continued gains in underlying operating margin.

“Accelerating growth remains our top priority and we continue to evolve our portfolio and seek out fast growth channel and geographical opportunities, as well as address those performance hotspots where growth is falling short of our aspirations,” he said.

Developed versus emerging

“Unilever is developing a pattern with a good performance in emerging markets and a struggle in developed markets. Ideally you want strength in both regions,” said Russ Mould, investment director at AJ Bell.

With the the consumer goods giant saying full-year growth will be in the lower half of its target range, he added: “Increasingly you have to question whether developed market consumers are shunning the big name brands and are happy with retailers’ own brands or less expensive versions of products.

“Unilever, like many other large cap consumer goods providers, has enjoyed many years of stellar earnings thanks to the strength of its brands and the public automatically flocking to its products because they stand out on the shelves. Now there is so much more choice and the consumer is increasingly value-driven and so will try alternative products, rather than simply rely on the big-name brands.”

While Unilever will make lower-priced versions of many of its products, these items are likely to come with lower profit margins, so to protect and grow margins, the group knows it will have to accelerate new product development.

“We’re already seeing this brand extension at work with examples such as the Hellmann’s brand being taken beyond its core focus of mayonnaise and used for different types of sauces,” Mould said. 

“This innovation is essential to keep its brands fresh. However, relatively new chief executive Alan Jope will equally have a close eye on emerging markets where the dynamics are more favourable to Unilever and plentiful opportunities to accelerate sales growth.”

Unilever shares, recently setting all-time highs, were down more than 1% to 4,931.26p on Thursday morning. 

Quick facts: Unilever PLC

Price: 4475 GBX

LSE:ULVR
Market: LSE
Market Cap: £117.61 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

PCF Bank's Scott Maybury reports on strong lending growth and increased...

PCF Group Plc's (LON:PCF) Scott Maybury speaks to Proactive London's Andrew Scott after the specialist lender posted record numbers in its latest year. Loans outstanding rose 55% to £339mln with profits for the twelve months to September climbing by 54% to £8mln. Maybury says targets for a...

11 hours, 41 minutes ago

3 min read