Anglo-Dutch consumer goods group Unilever began the year on a better-than-expected note, delivering 3.1 per cent underlying sales growth in the first quarter, ahead of expectations. The increase was backed by higher prices, some of which were enacted to offset rising commodity costs, and volume in the company's home-care business and strength in emerging markets, especially in Asia. Growth in underlying sales, stripping out acquisitions, disposals and currency moves, was balanced and higher than the market expectation of 2.8 per cent. Volume gains contributed 1.2 per cent to the growth, more than what analysts expected, while the increase in prices contributed 1.9 per cent. While analysts had been expecting sales of €12.3 billion, the company posted Q1 sales of €12.4 billion, while Turnover fell by 1.6 per cent to €12.4 billion.
The group said that it is on track to meet its performance goals this year, which calls for growth in underlying sales in the lower half of a 3 to 5 per cent range, steady free cash flow and improvement in underlying operating margin. The Seventh Generation and Omo brands, which include eco-conscious housekeeping products, performed especially well. Gains in emerging markets offered some respite after the group had warned that Latin America would impact its performance.
Company's rival, Nestle, also reported better-than-expected first-quarter sales, with organic sales growth at 3.4 per cent. The company also reported an increase of 6.3 per cent in emerging markets. This was more than the growth rate of 5 per cent reported by Unilever. Growth of a mere 0.3 per cent in developed markets was offset by an increase in emerging markets, where Unilever generates 58 per cent of its sales. Developed markets were affected by intense price competition in Europe, particularly in France and Germany, and economic uncertainty. Both the companies highlighted the strength in emerging markets where it is often easier to hold sales volume steady despite an increase in price. This was in contrast to the developed market where a rise in price generally leads to lower volumes.
Despite a strong performance, analysts questioned the sustainability of growth. Approximately two-thirds of improved sales came from price increases, as opposed to growth in volume. Investors are concerned that the company needs to invest more in its brands to stoke growth as this trend has persisted at Unilever for some time. Growth in Nestle, in contrast, was mainly fuelled by volume growth with only one-third of underlying sales growth coming from price increases.
Unilever chief executive Alan Jope, who took over in January, said that accelerating growth remains company's priority and a solid start to the year would help to keep the company on track for full-year expectations. The CEO is working to improve sluggish sales growth amid fundamental changes experienced in the industry. Consumers' desires for healthier, usually more local foods, are often met by new upstart brands who are assisted by the rise of online shopping and social media. As a result, the company is focusing on acquiring brands in fast-growing areas like healthier foods and prestige beauty products and launching new products to counter the proliferation of start-ups. The company noted that 70 basis points were added to first-quarter growth by the 29 acquisitions it has completed since 2015.
Share Price Commentary
Daily Chart as at April-18-19, before the market closed (Source: Thomson Reuters)
On 18th April 2019, at the time of writing (before the market closed, at GMT 02:10 pm), ULVR shares were trading at GBX 4,507.50, up by 2.95 per cent against its previous day closing price. The outstanding market capitalisation was around £114.90 billion with a dividend yield of 3.09 per cent.