Unilever Plc shares gained as the company moderated price increases on personal care and beauty products, leading to a rebound in purchases by shoppers.
Sales advanced 7.9% on an underlying basis in the second quarter. The company forecast a dramatic slowdown in its cost inflation, and optimism for better profitability led the stock to rise as much as 5.7% in London.
The results signal that consumer-goods companies may enjoy revived consumption by reining in price increases. The easing of inflation is good news for shoppers and comes after governments of countries such as the UK put pressure on supermarkets and consumer-goods makers to offer lower prices.
Investors are scrutinizing the first set of results presented by Chief Executive Officer Hein Schumacher for hints of his strategy to revive Unilever’s sluggish performance. The new CEO, weeks into the job, raised the full-year forecast slightly, predicting revenue growth of more than 5% this year. The guidance may be conservative, as analysts are forecasting 6.1%.
The company chose an external CEO to help fix its bureaucratic culture and deal with critiques that it had become too focused with the so-called “social purpose” of the consumer products it sells. Schumacher, the former boss of Dutch dairy cooperative Royal FrieslandCampina, is expected to revisit the debate over splitting food brands like Hellmann’s mayonnaise from the faster-growing personal care, beauty and wellbeing units.
The new CEO said he’s happy overall with the changes Unilever made to its organization before he arrived, as they will foster faster decision-making. Last year, Unilever started cutting 15% of its senior managerial positions and reorganized its businesses into five groups.
Unilever expects net cost inflation of about €400 million ($443 million) in the second half, down from about €1.5 billion in the first six months of the year.
Chief Financial Officer Graeme Pitkethly said price increases for food and ice cream might be higher than for other businesses as agricultural raw material costs remain more volatile due to drought in southern Europe and pressure on the supply of grain.
Ice cream was Unilever’s slowest-growing division with underlying growth of 5.6% even as prices rose more than 12%. The drop was led by a decline in at-home consumption and the business is more exposed to Europe, where consumers have been more resistant to price increases.
Volume grew overall in all regions except for Europe, Pitkethly said on a call with investors. The second quarter’s pricing growth mostly came from increases that had been made previously, he said.
The percentage of Unilever’s businesses gaining market share dropped to 41% as consumers shifted to cheaper products and the company eliminated underperforming product formats. Pitkethly called that disappointing and said the company aims to raise it above 50%.
“There is a trend to value as consumers look to balance the household budget,” he said, giving examples such as Indian consumers switching to loose tea and Brazilians buying less expensive laundry detergents.
What Bloomberg Intelligence Says:
“Unilever’s 1H beat may cool suggestions that a breakup of the company is needed and defies the consumer-pricing squeeze, with 2Q organic-sales growth of 7.9% (consensus 6.6%). The gains were all price driven, and volume decline was limited to 0.3%, with market share intact. Moderating pricing in 2H could see volume rise, lifting share and profitability. A 90-bp beat on adjusted operating margin in 1H was a category-wide contribution.” — Deborah Aitken, BI consumer-goods analyst
(Updates with executive comments starting in sixth paragraph)
