Unilever has characterised its first-half numbers as “solid”, with higher profits driven by margin improvements and a focus on brands that deliver higher returns. However, Unilever’s underlying sales growth narrowly missed consensus. There has been some concern about a slowdown in Unilever’s emerging market sales growth and net revenue gains were hit by currency exchange and disposals. Here is the City’s verdict on Unilever’s H1 numbers.

“Unilever has announced its results for Q2/H1, which CEO Paul Polman characterised as solid. In the analyst call he sensibly set a context of the broader Unilever journey, with the company entering a second phase. From working to be ‘fit to compete’, Unilever is now ‘maxing the mix’, with gross margin more to the fore alongside sales volume, market share and cash generation. Gross margin advancement reflects the benefit of new innovation as well as pruning activities where management felt that category and market profitability was too low. Such work was clearly evident in H1 but in a measured manner more is to come, particularly against an increasingly competitive and challenging market context.” – Clive Black, Shore Capital.

“The Q2/H1 has come in line with our expectations at the underlying level, but reflects a slight top line miss but margin beat, relative to consensus. Emerging market momentum has slipped a bit, but not by as much as we thought. Despite slight acceleration in foods, the essentially two-speed character (fast HPC, slow Foods) of the ULVR 2013 vintage persists. Strong gross margin expansion tees up the prospect of an FY margin beat.” – Martin Deboo, Investec Securities

“Unilever continues to be seen as a barometer for global economic health, with today’s news somewhat disappointing. Emerging market sales have slowed, while sales in the developed markets have slipped into negative territory. Europe and in particular southern Europe remain difficult, while China remains squarely in focus. More positively, the transformation at Unilever is continuing, with product innovation and cost savings remaining high on management’s agenda. All product categories grew globally, while the company continues to strengthen its footholds in places such as India.” – Keith Bowman, Hargreaves Lansdown Stockbrokers

“Despite “slowing” emerging markets, Unilever still delivered double-digits growth (+10.3%) which was basically in-line with Q1 supporting our view that “slowing” does not mean “crashing”. Plus HPC is still growing very strongly (personal care: +7.7%, household +10.2%) while food, partly due to the European weather, struggles (foods: +1.0%, refreshment: +1.9%) supporting our “slowly becoming more an HPC company and so a stronger company” thesis. The very strong gross margin growth has doubtless led to a big increase in A&P investment in the semester, although the precise figure was not disclosed, and still allowed Unilever to deliver above consensus on operating margins.” – Andrew Wood, Sanford Bernstein

“Unilever’s increased focus on gross margins is paying dividends (although helped by an easier input cost environment) with a 120bp rise to 41.0% in constant currencies, and despite higher A&P this allowed EBITA margins to beat our and consensus expectation of 13.9%, rising by 40bp to 14.0%. All geographies saw 30-50bp margin expansion, and on a category basis the low-margin problem areas of home care and refreshment saw encouraging expansion of 170bp and 90bp respectively…. Unilever’s imbalanced growth continues, but we think developed markets should pick up slightly in H2 and the skew to emerging markets continues to grow (now over 57% of sales). The margin progress is encouraging and obviously a key part of the investment thesis in the medium term is that Unilever can close the gap and key peers on margins.” – Graham Jones, Panmure Gordon

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