Unilever PLC (LON:ULVR) kept its interim dividend flat as underlying sales declined by 0.3% in the first half of 2020, but free cash flow increased amid changing coronavirus lockdown conditions in the second quarter.
The consumer goods colossus also revealed it will sell its tea brands PG Tips, Lipton and Brooke Bond and all its tea estates, following a review over the past six months, with the disposal process beginning immediately and expected to conclude by the end of next year.
For the first half of 2020, underlying sales were down only 0.1% but turnover fell 1.6% to €25.7bn, the FTSE 100 company said, after a 2.5% impact from currency swings offset a positive impact of 1.1% from acquisitions.
READ: Unilever prepares for lasting changes in consumer behaviour from coronavirus
The food and drinks business was the worst performer, with underlying sales down 1.8% in the second quarter as food service declined by nearly 40% and out of home ice cream by nearly 30% as people stayed at home much more during the coronavirus (COVID-19) lockdown.
More time spent at homes meant growth in-home consumption of foods, ice cream and tea but also that consumers bought less personal care items from a reduced need for going to work or socialising, leading to a 0.9% second-quarter decline in that division, where the only growth was from hygiene products.
Homecare was the strong performer, with growth of 4% as sales surged for household cleaning products such as Cif and Domestos.
The Anglo-Dutch group said its objective to protect cash during the crisis led to free cash flow increasing €1.3bn or 85% to €2.9bn, making it easy to maintain its quarterly dividend at €0.4104 per share.
Unilever chief executive Alan Jope said the performance during the first half “has shown the true strength of Unilever”
The focus for the rest of 2020, he said, will be on “volume led competitive growth, absolute profit and cash delivery”.
Glowing market reaction
Shares in the company shot up 8% to 4,671p on Thursday morning.
Analysts at broker Liberum said the results were “way better than feared”, exceeding the highest analyst estimate on both the top and bottom line.
“While parts of the portfolio proved resilient like household care, cleansing and in-home products, it could not offset the challenges from discretionary-linked out-of-home segments like ice cream, food service and prestige beauty. Some key needle movers include North America growing 9.5% in the quarter and more favourable marketing rates.”
The broker upped its target price to 5,290p from 5,100p.
Sophie Lund-Yates at Hargreaves Lansdown said the tea sale was “the latest effort by the consumer goods giant to shed some weight in the face of rapidly changing customer habits”, as “boosting agility and becoming more streamlined” were a core pillar of the strategy under Jope to get sluggish pre-Covid sales moving in the right direction.
“How long it takes for customers to fill restaurant seats to pre-pandemic levels is unknowable at this point, but it will act as a drag on performance for a while,” she added but said better sales from developed markets was a bright spot in the numbers.