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2020-07-24

Unilever investors breathe sigh of relief on strong performance

Eating at home during coronavirus lockdowns boosted demand for products such as Hellmann's mayonnaise


Siddharth Cavale | Business Live

Second-quarter sales at Unilever fell much less than expected as a pick-up in eating at home during coronavirus lockdowns boosted demand for products such as Hellmann's mayonnaise and Breyers ice cream.

Shares in the consumer goods giant were up 8.4% afternoon trade, after rising as much as 9.3% earlier on Thursday, as the Anglo-Dutch group surprised analysts who had expected a much bigger hit to sales from the closure of restaurants, schools, cinemas and outside venues.

“Overall, Unilever's strong performance in the period and an increasingly focused strategy has led to a sigh of overdue relief from investors,” said Richard Hunter, head of markets at interactive investors.

Underlying sales fell 0.3% in the three months ended June 30, compared with analysts’ mean forecast for a 4.3% drop.

That was still the first decline in quarterly sales since the third quarter of 2004, according to Jefferies analysts.

Underlying sales in North America jumped 7.3% in the first half, with volumes up as much as 20% in some categories, CFO Graeme Pitkethly told a media call. The US is Unilever's biggest market by revenue.

Breyers, Magnum and Klondike ice-cream, along with Hellmann's mayonnaise and Knorr soups, were strong performers in food, while Suave beauty products did well in hygiene, he said.

“We see no signs of North America slowing down,” CEO Alan Jope told analysts, despite coronavirus-cases spiking in the US, but cautioned that other markets did not look so robust.

“We believe that talk about a quick recovery is too optimistic. A deep global recession has already started and we are seeing consumer habits changing dramatically. Unemployment is rising across many markets and even for those with jobs, people are saving a bit harder,” Jope said.

Pitkethly said Unilever was now getting into its toughest phase in Latin America and Africa, where virus cases are spiking, while also dealing with other issues such as a surge in gang-related violence in Mexico that was making business difficult there.

Highlighting the huge disruptions caused by the pandemic, Unilever said food service sales declined by nearly 40% and out-of-home ice cream by nearly 30% in the first half. However, e-commerce sales were up 49%, with North America leaping 177%.

Tea review

Unilever also said that after exploring options for its €3bn a year tea business, it had decided to keep its operations in India and Indonesia and its ready-to-drink joint venture with PepsiCo.

The rest of the tea business, which sells Pukka Herb and PG Tips and made €2bn of revenues in 2019, will be separated into an independent entity, a process the company expects to conclude by the end of 2021.

Some analysts think Unilever could ultimately be more exposed to the pandemic than rivals such as Procter & Gamble and Nestle due to its greater reliance on emerging markets, where it makes about 60% of annual sales.

Analysts expect Nestle to report flat quarterly sales next week. Its shares were up more than 1% after Unilever's forecast-beating performance, but Jefferies analyst Martin Deboo cautioned against reading too much into Unilever's results for Nestle.

In North America, for example, he noted that while Unilever had benefited from its strength in foods, Nestle was more exposed to pet care, where there are signs consumers are running down stocks after building them up in March.

Unilever's underlying sales in developed markets rose 2.4% in the first half, while they declined 1.9% in emerging markets.

In China — where the virus first emerged and was first brought under control — sales returned to mid-single digit growth in the second quarter, although food service remained challenging, the company said. 

Reuters

 


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