Shares in Domestos, Marmite and Magnum ice cream maker Unilever (ULVR) cheapened 5% to £40.30 on Thursday after the FTSE 100 titan withdrew 2020 sales and margin guidance due to the COVID-19 pandemic.
The packaged consumer goods giant also posted flat first quarter organic sales, although thankfully for shareholders who rely on income, Unilever's strong balance sheet and cash position meant it was able to maintain the June quarterly dividend at 36.14p.
‘Shareholders will be pleased that Unilever is among the select few companies still prepared to pay a dividend during the coronavirus crisis,’ commented Russ Mould, investment director at AJ Bell, adding ‘it’s all the more impressive that the Marmite maker is doling out the cash given that it failed to grow sales in the first quarter of 2020.’
GUIDANCE WITHDRAWN
‘Covid-19 is having an unprecedented impact on people and economies worldwide,’ explained chief executive Alan Jope, as he pulled Unilever’s previous 2020 growth and margin targets.
The unknown severity and duration of the pandemic mean Unilever ‘cannot reliably assess the impact across our markets and our business’, although Jope insisted Unilever has ‘moved at speed to support our multiple stakeholders and maintain our operations through the crisis, and prepare for growth in a new normal.’
FLAT SALES PERFORMANCE
Group turnover nudged 0.2% higher to €12.4bn in the quarter with a boost from acquisitions, yet organic sales growth was flat with a 0.2% drop in price offsetting volume growth of 0.2%.
And while developed markets underlying sales growth was 2.8%, Europe and North America benefiting from household stockpiling, lockdowns in China and India led to a 1.8%sales decline in emerging markets.
Jope explained that demand patterns are changing due to the coronavirus pandemic.
The Home Care division enjoyed 2.4% growth thanks to bumper demand for Cif surface cleaners and Domestos bleach, and sales were up 0.3% in Beauty & Personal Care with the Lifebuoy hygiene brand in demand amid raised handwashing awareness.
However, Food & Refreshment sales dropped 1.7% as lockdown measures hit out-of-home food and especially ice cream sales.
THE EXPERTS’ VIEW
‘The big news is undoubtedly the dropped margin guidance,’ said Liberum Capital, which has a ‘buy’ rating and £51 price target on Unilever, arguing the company is very cheap compared with Nestle and Procter & Gamble and versus bonds.
‘While not a huge surprise all in, this margin target has become controversial as it has coincided with slower growth. While the company has a convenient excuse, we wonder if Unilever will commit to meeting such targets in the medium term. Many models hinge on it.’
Liberum also pointed out Unilever’s last investor days highlighted a move away from ‘a dizzying pace of bolt-on deals towards integration, disposals and continuing digital transformation.
'The market misses that management focus on scaling the brands of tomorrow whilst disposing of slow-growth assets should help Unilever become a mid-single-digit top-line growth company in time (mindful that such disposals may be delayed by COVID-19).'
‘Perhaps what really matters, in relative terms to how other companies are struggling temporarily, is the fact that Unilever is still managing to achieve significant sales, and ones that aren’t plummeting,’ added AJ Bell’s Mould.
‘Interestingly Unilever has dropped its growth and margin outlook for 2020. The business had come under criticism late last year for falling short of its growth target. Coronavirus gives it the perfect excuse to reset expectations and reduce pressure on the business to meet what might have been overly-aggressive goals.’
