ii view: is Unilever’s growth plan working?

Second-quarter results to 30 June 

• Adjusted or underlying sales up 3.9% to €16.1 billion
• Volumes up 2.9% - Product price rises of 1%
• Adjusted first-half operating profit up 17% to €6.1 billion
• Quarterly dividend up 3% to €0.4396 per share
• €1.5 billion share buyback commenced

Guidance:

• Continues to expect full-year underlying sales growth of between 3% and 5%
• Continues to pursue underlying sales growth of between 4% and 6% from 2026 onwards

Chief executive Hein Schumacher said: 

"We are focused on driving high-quality sales growth and gross margin expansion, led by our Power Brands. Over the first half, we made progress on those ambitions.

“We continue to embed the Growth Action Plan, doing fewer things, better and with greater impact. The implementation of a comprehensive productivity programme and the separation of Ice Cream are key to delivering on that commitment and we are progressing at pace.”

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ii round-up:

Unilever (LSE:ULVR) is a major provider of consumer goods, operating across the five areas of Beauty and Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. 

Its many brands include Dove, Vaseline, Cif, Domestos, Comfort, Hellmann’s, Knorr and Magnum.

For a round-up of these latest results announced on 25 July, please click here. 

ii view:

Unilever operates in more than 190 countries, making products in over 280 factories. Personal Care products were its biggest seller in 2023 at 23%, followed by Nutritional sales at 22%, Beauty and Wellbeing at 21% and Home Care 20%. Its Ice Cream business, accounting for the balance of 14% of sales, is now to be sold or demerged under its ongoing ‘Growth Action Plan’ to simplify and enhance performance – likely driven 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 investments in areas such as marketing, product innovation and technology are generating additional costs which pressure profit margins, and competitors such as Procter & Gamble Co (NYSE:PG) and L'Oreal SA (EURONEXT:OR) are not standing still. Unilever's turnover-weighted market share remained largely unchanged on a rolling 12 month-basis, while a forecast one-year price/earnings (PE) ratio in line with the three-year average may suggest the shares are fair value.  

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To the upside, some recent improvement in product volumes may indicate a recovery in consumer demand for branded items. An eventual exit from ice cream will increase focus on other businesses, and cost savings of €800 million from job losses and elsewhere are being targeted over the next three years. A near three-fifths of sales coming from the emerging markets does potentially leave many of its customers aspiring to branded items, while shareholder returns remain a focus given a €1.5 billion share buyback and a forecast dividend yield of just over 3%. 

In all, and despite ongoing risks, a self-help programme and easing consumer pressures look to leave this consumer goods giant worthy of its place in diversified investor portfolios.  

Positives: 

• Cost saving programme
• First increase in the dividend since Q4 2020

Negatives:

• Elevated cost pressures
• Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

Hold