Unilever, the Anglo-Dutch conglomerate, said it will “reignite” volume growth by investing in its brands.
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Speaking at the company’s earnings conference call yesterday (5 November), CEO Paul Polman said that gross margins had steadily improved, not only in the last quarter, but over several quarters.
“There’s no reason why that won’t continue,” Polman insisted. “We’ve shown a gross margin improvement of 290 basis points in quarter three and it’s now up 30 basis points in the year as a whole. I’ve said we will reignite volume growth once more, while protecting operating margins and cash flow.”
He told analysts: “We will do that by reinvesting A&P again behind our brands. [Volume growth] is up last quarter, it is up this quarter and it will be up in quarter four. I’ve said that consistently. So that has to come out of gross margin, which by deduction shows that gross margin will continue to show improvement.”
Polman said that the company had “rightfully or wrongly” for some time been accused of gross margin erosion.
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By GlobalData“When you get the volume growth back you will see the gross margins improve over time and that is a guaranteed way of growing top line and bottom line. That’s the model we are trying to create.”
Asked whether the company will return to a positive margin trend in Europe, Polman told analysts that “perpetual restructuring does not lead to long-term volume growth” and that its margins in Europe are “ahead of the rest of the world”.
“There is no reason why we cannot grow in Europe. Not every quarter perhaps, but we should be able to get Europe back to growth. You see in Europe now that we have invested in organic growth in quarter three. We’ve made some adjustments to the prices to stay competitive. There’s no doubt that competitive situations in Europe remain more challenging. But there’s no reason why Europe should not grow and have margin expansion in line with the rest of the company.
“As long as we can deliver the overall margin growth for the company and keep European margin deliver in line with the rest of the company, I’ll be happy. But right now we have to invest a little in Europe to keep that growth again and it will be a good thing for our shareholders.”
Polman added that the main driver for growth will be innovation.
Unilever yesterday booked a drop in profit for the first nine months of the year but reported strong sales and volume growth.
The Knorr-to-Ben & Jerry’s maker said that profit dropped 33% for the period to EUR2.75bn (US$4.08bn).
Net sales also fell, reaching EUR30.16bn, a 1% decrease on the previous year as a result of currency movements and disposals. Underlying sales growth however, increased 4.1%, with volumes up 1.4%.
Bernstein analyst Andrew Wood said Unilever’s volume momentum continues to be impressive.
“The Q3 performance was strong across the board, providing good evidence to support our “commodity sweet spot theory” as gross margin was up strongly, supporting a big increase in A&P, yet still allowing good margin growth and helping drive strong volume momentum…well ahead of consensus.”
