Unilever Plc shares advanced as the maker of Dove soap moderated price increases on personal care and beauty products, leading to a rebound in purchases by shoppers.
Sales advanced 7.9 percent on an underlying basis in the second quarter. The company forecasted a dramatic slowdown in its cost inflation, and optimism for better profitability led the stock to rise as much as 5.7 percent 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 lower prices.
Investors are scrutinising 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 percent this year. The guidance may be conservative, as analysts are forecasting 6.1 percent.
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.
Asked if he was happy with Unilever’s various divisions, he said each of them have prospects to expand. “So I feel good about where we are, and I aim to accelerate growth on everything that we own today.”
The new CEO said he likes the changes Unilever made to its organisation before he arrived, as they will help speed up decision-making. He’ll focus on building more of a performance culture. Last year, Unilever started cutting 15 percent of its senior managerial positions and reorganised its businesses into five groups.
Schumacher joins Unilever as the brunt of raw material inflation eases. The company 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
Ice cream was Unilever’s slowest-growing division, with underlying growth of 5.6 percent even as prices rose 12 percent. 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 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.
Pitkethly said it was disappointing that the percentage of Unilever’s businesses gaining market share was only 41 percent as consumers shifted to cheaper products and the company eliminated underperforming product formats. The company aims to raise that above 50 percent.
“There is a trend to value as consumers look to balance the household budget,” the CFO 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 percent (consensus 6.6 percent). The gains were all price-driven, and volume decline was limited to 0.3 percent, 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,” said Deborah Aitken, BI consumer-goods analyst.
By Dasha Afanasieva
Learn more:
Unilever’s New CEO May Need to Get Radical for a Company Turnaround
Hein Schumacher will soon inherit a company that has failed to deliver sustainable sales growth despite powerful brands and enviable positions in emerging markets. Schumacher must reverse that underperformance. If he can’t achieve it within the company’s current structure, he must look at a more radical solution: a breakup.
