- H1 organic growth of 4.1%
- Power Brands spearheading growth
- Margin guidance upgrade boosts stock
Another quarter of improving volumes, positive progress with its cost-cutting drive and a massive upgrade to full year margin guidance were key reasons why consumer goods goliath Unilever (ULVR) led the FTSE 100 higher today.
The planned sale of its ice cream division, which could fetch as much of £15 billion, alongside the decision to cut 3,200 office jobs in Europe, have begun to revitalise Unilever’s share price following a period of sluggish growth and activist pressure.
Today’s first half results showed new CEO Hein Schumacher’s focus on streamlining the conglomerate’s operations is paying off and sent shares in the Persil-to-Sunsilk maker up 5% to £46.16, a two-year high.
However, second quarter organic sales growth did came in shy of expectations with both Unilever and rival Nestle (NESN:SWX), whose shares were marked down 5% on a full year sales growth guidance cut, seeing the inflation benefits around pricing beginning to wear off.
As input costs have come down and inflation has returned to central bank targets, cash-strapped consumers are now less understanding of large increases in pricing.
POWER BRANDS LEAD THE WAY
Dove deodorants-to-Domestos bleach supplier Unilever reported first half underlying sales growth of 4.1% and volumes up 2.6% as the company delivered its third consecutive quarter of improving volume growth in Q2.
Power Brands, which represent three quarters of group revenue, spearheaded the growth with a 5.7% sales advance and volumes up a healthy 4% in the half.
Second quarter organic growth was 3.9%, below the 4.3% analysts were looking for, but thanks to prior price hikes and the early benefits of restructuring, underlying operating profit jumped 17.1% to €6.1 billion and the operating margin expanded by 250 basis points to 19.6%.
Unilever also upgraded its full year underlying operating margin forecast materially higher to ‘at least 18%’ amid increasing investment behind its brands.
In terms of the divisions, Beauty & Wellbeing delivered the strongest first half organic growth at 7.1%,, with the company calling out double-digit growth for both Sunsilk and Vaseline, although prestige beauty sales were softer in the second quarter as consumers grappled with cost-of-living pressures.
Personal Care delivered underlying sales growth of 5.6%, with Dove growing at a double-digit clip, while growth in Home Care was supported by the launch of Persil Wonder Wash.
EXPERT VIEWS
Chris Beckett, head of equity research at Quilter Cheviot, said: ‘The ice cream business at Unilever continues to struggle, highlighting just why management wants to sell it off. However, this may be a case of eyes being taken off the ball here and it thus may struggle to get the valuation it wants or deserves for that business. It wouldn’t be the first time Unilever has undersold a business due to its internal struggles.
‘That said, Unilever has delivered positive guidance and the turnaround story is alive and well in the more important areas of the business. The conglomerate has struggled of late, but management has done a good job of righting the ship and putting it back on a path for growth.’
Begbies Traynor’s (BEG:AIM) Julie Palmer noted that with its diversified product portfolio, Unilever’s decision to home in on its Power Brands is a strategy that is ‘already showing some promising signs of success. Despite inflation falling, consumers are clearly still feeling the pinch, making these Power Brands all the more valuable in their ability to deliver volume-led growth at a time where price increases are difficult to implement.’
Palmer added: ‘As the consumer goods giant presses on with its much-needed turnaround, the market should feel more confident that Unilever is positioned for sustainable growth at a time where other big names in consumer goods are floundering.’
