- Positive full year and fourth quarter volumes
- €1.5 billion share buyback pleases
- But competitiveness remains ‘disappointing’
Fast-moving consumer goods giant Unilever (ULVR) reported a return to volume growth with improved margins for the year to December 2023 which, combined with a new €1.5 billion buyback set to launch in the second quarter, sent the shares up 3% to £40.16 in mid-morning dealings.
However, CEO Hein Schumacher conceded the Marmite-to-Hellmann’s maker’s competitiveness remains ‘disappointing’ and insisted performance ‘needs to improve’ as his turnaround plan backed by activist investor and board member Nelson Peltz picks up pace.
MIXED BAG
Unilever’s full year results were a real mixed bag with turnover of €59.6 billion coming in 0.8% lower year-on-year and falling short of the €60 billion called for by consensus.
But underlying sales growth of 7% reflected price increases as well as a welcome return to positive volumes, up 0.2% for the year and 1.8% in the final quarter, as price hikes slowed, while operating margins improved 60 basis points to 16.7% and free cash flow grew by a bumper €1.9 billion to €7.1 billion.
Fourth quarter underlying sales grew 4.7% to €14.2 billion, but this was a slowdown on the 5.2% growth delivered in the third quarter.
Worryingly, Unilever said the percentage of its business winning market share on a rolling 12 month-basis was a disappointing 37% amid share losses to private label in Europe and consumer shifts to super-premium segments in North America.
‘Our competitiveness is not good enough and we are moving quickly to address it,’ insisted the FTSE 100 colossus.
Whilst Unilever’s beauty and wellbeing and personal care businesses delivered strong volume growth throughout the year and home care returned to positive volume growth in the second half, underlying sales growth from the ice cream division was disappointing at 2.3% with a 6% volume decline as cash-strapped consumers opted for cheaper supermarket own-brand products.
WHAT DID SCHUMACHER SAY?
In terms of the outlook, the Dove soap-to-Domestos bleach maker guided towards 2024 underlying sales growth within its multi-year 3% to 5% range ‘with more balance between volume and price’.
The company expects to deliver a modest improvement in operating margin for the year too.
Schumacher said Unilever’s new leadership team has ‘embedded the action plan at pace. We have increased investment behind our 30 Power Brands, accelerated portfolio transformation, and are driving a sharper performance focus with clear and stretching targets across the whole organisation.
‘We are at the early stages of this work and there is much to do but we are moving with speed and urgency to transform Unilever into a consistently higher performing business.’
EXPERT VIEWS
Wealth Club’s Charlie Huggins said there is a lot to like in Schumacher’s turnaround plan, but it is hard to escape the conclusion that ‘the environment for Unilever and its peers has become much tougher in recent years. Cost-of-living challenges mean private label brands have never been more appealing, meaning Unilever is having to work harder just to maintain market share, let alone grow it.’
Russ Mould, investment director at AJ Bell, said the volume growth return and improved margins would suggest Unilever is ‘getting back in the groove. However, the journey still has some way to go as there are pockets of weakness which it needs to resolve.’
Mould added: ‘Trading down will remain a competitive threat for Unilever until interest rates start to fall and consumers feel more confident about their finances. One of the benefits of having a broad spectrum of brands is that the diverse portfolio will act as a cushion if a few areas go through a bad patch.
‘However, it is interesting to note comments from chief executive Hein Schumacher that overall performance needs to improve. It shows the new boss is striving for more and that new-found energy needs to resonate across the whole business.’
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.
