FTSE 100: Unilever ups sales guidance after passing on higher costs to customers

·Business Reporter, Yahoo Finance UK
·4-min read
Dove soap is one of Unilever's brands
Unilever owns brands such as Dove soap, Marmite, Ben & Jerry’s ice cream, and Vaseline. Photo: Reuters/Dado Ruvic/Illustration

Consumer goods giant Unilever (ULVR.L) rose more than 3% on Tuesday after it raised its sales guidance for the full financial year.

The group, which owns brands such as Dove soap, Marmite, Ben & Jerry’s ice cream, and Vaseline, had expected underlying sales to rise by between 4.5% and 6.5%, but is now expecting this to be higher.

The company said that it had benefited from passing on increased costs to customers amid a sharp cost of living crisis and soaring inflation.

It lifted its prices by 9.8% in the first half of the year, accelerating this to 11.2% in the second quarter.

Graeme Pitkethly, finance chief, said in a call on Tuesday morning that Unilever had hiked prices enough to offset around 70% to 75% of the increases in its costs.

But the group admitted that its costs are still set to increase by billions of pounds this year, and that it was looking into solving the issue.

Rising input costs weighed on margins during the period, but higher sales meant underlying operating profit grew 4.1% to €5bn (£4.2bn, $5.1bn). Underlying operating margin guidance remained at 16%, within the previous range of 16% to 17%.

Revenues in the first half of the year hit €29.6bn, a rise of 14.9%, with improvements across all business divisions.

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In the half-year, underlying sales growth of 8.1% was achieved, comprising 9.8% in price growth and offset by a decline of 1.6% in volumes as customers opted for cheaper rival products.

The figure of 8.1% came against expectations of 7% growth, and was powered by second-quarter growth of 8.8%.

“Unilever has delivered a first half performance which builds on our momentum of 2021, despite the challenges of high inflation and slower global growth,” Alan Jope, chief executive said.

“Underlying sales growth of 8.1% was driven by strong pricing to mitigate input cost inflation, which, as expected, had some impact on volume.”

Watch: Unilever expects price hikes ahead as cost pressures mount

Unilever also announced a dividend of €0.4268 and plans to start another €750m tranche of its ongoing buyback scheme in the third quarter.

“Having a host of strong brands is essential if any business wants to pass on rising costs, and Unilever has those up its sleeve – the ability to raise prices just shy of 10% and only have a 1.6% drop in volumes is a good place to be,” Matt Britzman, equity analyst at Hargreaves Lansdown, said.

“There’s a limit to how much someone will pay for a Magnum though, and we’ve heard from supermarkets that shoppers are now starting to slide down the value chain in an attempt to keep shopping lists intact.

“Juggling higher prices and weaker consumers is a tough act to nail, so far Unilever looks to be doing a decent job and if restructuring savings of around €600m can materialise, that’ll take some pressure off.”

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However, Charlie Huggins, head of equities at Wealth Club, highlighted some of Unilever’s problems.

“Unilever’s basic problem is that it’s too big, with over 400 brands sold into more than 190 countries,” he said. “It also has 149,000 people worldwide, including 6,000 in the UK and Ireland although it did cut 1,500 managerial jobs earlier in 2022, as part of a massive shake up aiming for a new, simpler organisation structure.”

He added: “While size brings certain advantages, it can also act as a massive anchor. It makes Unilever much less agile and entrepreneurial than smaller competitors. The company admits this itself and knows it needs to speed up decision making.

"But it’s always going to be very hard for a company of Unilever’s size to match the speed of smaller peers. In a world that’s changing so quickly, that’s a risk. It also means opportunities for growth are likely to be missed.

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