Shares in food, home and personal care products powerhouse Unilever (ULVR) rose 2.8% to £41.92 after the Marmite-to-Magnum maker served up forecast-beating first quarter sales growth amid buoyant demand for ice creams and mayonnaise.
The Anglo-Dutch consumer goods giant is ‘confident’ it can deliver underlying sales growth in 2021 with first half growth ‘around the top’ of management’s 3%-to-5% target.
And the cash generative colossus also pleased investors with news it will begin a share buyback of up to €3 billion in May.
FORECAST-BEATING QUARTER
Underlying sales growth of 5.7% breezed past the 3.9% analysts were looking for as Unilever saw voracious appetite for food and refreshment brands including Magnum ice cream and Hellmann’s mayonnaise, as well as persistently elevated demand for home and hygiene brands such as Domestos and Lifebuoy soap.
Total turnover softened 0.9% to €12.3 billion amid unhelpful currency swings, yet the market welcomed news of 9.4% emerging markets growth driven by double-digit gains in China and India following strict lockdowns in the prior year.
Growth in developed markets was much more muted at 0.8%, with mid-single digit growth in North America offset by a decline in Europe, where volumes were impacted by lockdowns and Unilever began to lap tougher food and hygiene product comparatives.
TEA SALE ‘ON TRACK’
‘We are driving the evolution of our portfolio, with strong growth in Prestige Beauty and Functional Nutrition,’ explained CEO Alan Jope, adding that ‘the operational separation of our Tea business is on track.’
Unilever has appointed an external CEO to lead its €2 billion revenue tea business, with options under consideration including an IPO, a demerger, a joint venture or a disposal.
‘We are also making good progress in creating a new unit, Elida Beauty, comprising a number of our smaller beauty and personal care brands,’ continued Jope.
THE EXPERT’S VIEW
AJ Bell Investment Director Russ Mould commented: ‘Slow and steady wins the race, so the adage goes, and Unilever certainly fits the bill. Its goal of growing sales by 3% to 5% a year won’t excite a lot of people, given how there are technology companies adding one or even two zeros to the end of those figures for their annual sales progression. However, its resilience and stamina are often forgotten strengths.
‘A year or two ago, the market was questioning whether Unilever could grow at all, yet now it is beating its sales growth target.’
Mould also pointed out that amid expectations of inflation accelerating this year, ‘Unilever’s pricing power strengths will be put to the test. It has flagged additional supply chain costs and raw material inflation, which is putting pressure on margins, so the solution would be to pass on those costs to the end customer.
‘Of the 5.7% sales growth in the first quarter, 1% can be attributed to higher selling prices and the rest greater sales volumes, so it is already displaying pricing power, particularly in its food and refreshment products.’
