ii view: great advert for Unilever's ice cream unit

Third-quarter trading update to 30 September 

• Adjusted or underlying sales up 4.5% to €15.2 billion (£12.7 billion)
• Volumes up 3.6% - Product price rises of 0.9%
• Ongoing €1.5 billion share buyback programme

Guidance:

• Continues to expect full-year underlying sales growth of between 3% and 5%

Chief executive Hein Schumacher said: 

“We are still in the early stages of transforming our performance as we execute the Growth Action Plan at pace - focused on doing fewer things, better and with greater impact. We are starting to see the positive impact from scaling fewer, bigger innovations across our markets supported by increased brand investment. 

“We are on track to deliver our 2024 outlook and are confident that the steps we are taking will help to transform Unilever over time into a consistently higher performing business."

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ii round-up:

Consumer goods giant Unilever (LSE:ULVR) today detailed quarterly sales growth which exceeded City forecasts, driven by its ice cream business which will soon be either sold or spun out.

The maker of products including Dove, Comfort, Hellmann’s and Ben & Jerry's delivered third-quarter sales growth of 4.5% year-over-year, aided by volume growth of 3.6% and price increases of 0.9%. That beat analyst forecasts for nearer 4.2%. 

Shares in the FTSE 100’s fourth-biggest company by market value rose 3% in UK trading having come into this latest news up 22% year-to-date. Fellow consumer goods companies Reckitt Benckiser Group (LSE:RKT) and PZ Cussons (LSE:PZC) are down 9% and 44% over that time. The FTSE 100 index is up 7%.

Unilever sells across five areas: Beauty and Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. The latter is eventually to be exited under plans to simplify the business and enhance performance. 

Ice cream sales during the quarter rose 9.8% to €2.4 billion, aided by operational improvements, product innovation and a weak comparative. Clearly, Unilever will hope that this performance from the Ben & Jerry's division might grab the attention of a potential buyer.

Beauty and Wellbeing sales came in next, climbing 6.7% to €3.2 billion. Volume growth of 5.7% and a strong performance for power brand Dove helped provide the gain.

At the other end of the spectrum, Nutrition sales rose just 1.5% to €3.2 billion, with muted volume growth coming alongside moderating prices. 

Geographically, developed markets, accounting for 43% of overall turnover, grew sales by 6.9%, driven by volume growth of 6.8% and 0.1% price increases. The balance of sales to emerging markets improved 2.9%, with gains in volume and price split almost equally. 

Broker Deutsche Bank reiterated its ‘buy’ stance on the shares post the update, flagging a fair value price of £50 per share. 

ii view:

Employing over 125,000 people, Unilever highlights that around 3.4 billion people use its product every day. It sells in over 190 countries, producing products via more than 280 factories. Personal Care items were its biggest seller in 2023 at 23% of revenues, followed by Nutritional at 22%, Beauty and Wellbeing at 21% and Home Care 20%.

Ice Cream accounted for the balance of 14% of sales. It is now to be sold or demerged as part of Unilever’s ongoing ‘Growth Action Plan’ to simplify and enhance performance – something encouraged by activist investor Nelson Peltz who has a seat on the board. Ice cream sales rose 2.3% in 2023, the lowest divisional growth. 

For investors, elevated borrowing costs continue to pressure the disposable income of its customers. Ongoing investment in areas such as marketing, product innovation and technology are generating additional costs to pressure profit margins. Competitors such as Procter & Gamble Co (NYSE:PG) are not standing still, while currency movements can hinder performance. 

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On the upside, this latest performance represents a fourth consecutive quarter of improved volume growth. An eventual exit from ice cream will increase focus on other businesses. Cost savings and job losses are being pursued over the next three years, while shareholder returns remain a focus given a €1.5 billion share buyback and a forecast dividend yield of around 3%.  

On balance, and despite continued risks, a self-help programme and easing consumer pressures look to leave this consumer goods mammoth worthy of a place in diversified investor portfolios.  

Positives: 

• Diversity of products and geographical regions
• Cost saving programme

Negatives:

• Pressured consumer incomes
• Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

Strong hold