- Q3 sales top forecasts
- Full year guidance reiterated
- Ice Cream separation on track
Consumer goods giant Unilever’s (ULVR) shares rose 4% to £48.39 after the Dove-to-Domestos maker reported a fourth quarter of positive volume growth on the spin and reiterated its full year outlook.
CEO Hein Schumacher has reinvigorated growth at the Marmite-to-Sunsilk maker, whose shares have materially outperformed the FTSE 100 this year, and the separation of Unilever’s Ice Cream business is on track to complete by the end of 2025.
POWER BRANDS OUTPERFORM
Unilever served up third quarter organic sales growth of 4.5%, ahead of the 4.1% consensus estimate with volume growth increasing to 3.6% as the pace of price hikes continued to moderate, slowing to a mere 0.9% in the period.
Sales from Power Brands, which speak for roughly three quarters of group revenue, rose by 5.4% with volumes up 4.3%, driven by standout performances from Dove, Liquid I.V., Comfort and Magnum.
While the Beauty & Wellbeing and Personal Care divisions put up strong performances, the one area that stood out was the Ice Cream business, which owns Wall’s, Magnum and Ben & Jerry’s and has been put up for sale as part of Unilever’s simplification programme.
‘Sales were up a very impressive 10%, despite the spectre of a sales process looming over that part of the business,’ said Quilter Cheviot analyst Chris Beckett.
‘This has clearly focused management and helped to deliver good growth. Perhaps they could put more business units up for sale if these are the results it can generate.’
WHAT DID SCHUMACHER SAY?
‘We have delivered a fourth consecutive quarter of positive, improved volume growth, with each of our business groups driving higher volumes year-on-year,’ enthused Schumacher.
‘We are taking decisive actions, where we see operational or market challenges to ensure we are well positioned for consistent and improved performance. As part of the group’s overall transformation, we are implementing a comprehensive productivity programme and the separation of Ice Cream, both of which are progressing as planned.’
There was also relief as Unilever left its full-year outlook unchanged despite encountering slower market growth.
The company is guiding for underlying sales growth of 3% to 5% in full-year 2024 with an underlying operating margin of ‘at least’ 18%, but with increased investment behind its brands, the year-on-year second half margin progression will be smaller than in the first half.
TRICKY BALANCING ACT
AJ Bell investment director Russ Mould said that a little over a year into Schumacher’s tenure, things are definitely improving for the consumer goods giant.
‘This performance has been built on improved product innovation but also slowing down price increases,’ said Mould. ‘This helps explain why the company expects margin progression to slow overall in the second half of the year.’
He continued: ‘Unilever faces a tricky balancing act between protecting its profitability and not alienating shoppers. This is a particular risk in developed markets where customers have the option of trading down to generic alternatives but less of an issue in emerging economies where these kinds of options are not readily available. Schumacher’s shake-up of the business continues to progress with the sale of the ice cream division on track to complete by the end of next year.’
Quilter Cheviot’s Beckett conceded there are still some negatives surrounding Unilever, ‘but these are generally issues most of the consumer goods companies are having to battle just now. China’s consumer weakness is very much present in these results - developed markets are performing materially better than emerging markets - and Indonesia has been a problem for all western brands.
‘Guidance doesn’t suggest any improvement in these two countries any time soon. But all in all, Unilever remains on the road to recovery. If it continues to perform like this then there is still scope for a further re-rating despite the strong share price growth already this year.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
