Unilever CEO Paul Polman today (26 July) called on the company’s food business to improve further after reporting an up-and-down first half of the year.
The consumer goods giant said today sales from its food unit increased 3.2% to EUR7.1bn (US$8.72bn) in the first six months of 2012.
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However, price increases boosted sales. Volumes fell 1% over the course of the first half of the year and, in the second quarter, dropped 2.4%.
Food manufacturers are battling difficult trading conditions in many Western markets, where volumes have been stagnant for months. Companies have looked to increase prices to offset commodity costs. However, consumers, concerned about the weak economy, have pulled back on spending in some categories or looked for value in others.
Speaking to analysts after Unilever reported its results, Polman said its food business had shown signs of improvement. He pointed to the success of Knorr Jelly bouillon, which he said would be generating EUR100m in sales by the end of the year. However, the Unilever chief admitted he wanted more from what is the company’s second-largest unit, behind personal care.
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“Even though we have come a very long way, I’m not yet satisfied that our operational capability is sufficiently close to being best in class. Our performance in tea and parts of food is getting better but not sufficiently good yet everywhere. Our service and quality levels are still not good enough in some important markets. Our inventory levels, although improving, are simply still too high.”
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By GlobalDataLooking at the results from Unilever’s food business in the first half of the year, CFO Jean-Marc Huet said price increases continued to boost sales, which had hit volumes.
“Underlying sales growth continues to be driven by price and this has impacted volume growth, particularly in spreads, where pricing has been highest. The timing of Easter also negatively impacted sales volumes in Q2,” Huet said.
However, he added the company’s dressings business saw sales increase “strongly” and claimed it was seeing “market development coming through” in savoury. Knorr sales, Huet said, were up 4%.
Panmure Gordon analyst Graham Jones said Unilever’s food sales had been hit by the timing of Easter in the second quarter. However, he claimed its first-half food sales were “respectable”.
Unilever shares finished the day up over 5% as the market reacted positively to its results. Organic sales growth and core margins beat analyst forecasts. Personal care and emerging markets, where Unilever predominatly sells non-food products, helped boost sales. Net profit increased 1% to EUR2.4bn.
Jones argued Unilever had put in “a gold medal performance.” He said: “Unilever’s H1 performance is, in our view, impressive and we think provides yet more evidence of the improvement made under Mr Polman’s leadership. Innovation has clearly, and markedly, stepped up and the more aggressive roll-out of brands into white spaces, coupled with better execution, is driving growth well ahead of its markets.”
Polman said the figures underlined the company was making “solid progress”.
“We’re making clearer choices, allocating resources sharply and concentrating A&P behind brands and categories where we see greatest potential for profitable growth,” he said.
