Investors ignored missed sales forecast at Unilever in favour of big beats to margin improvement targets to send shares at the Hellmann’s and Magnum supplier soaring to the top of the FTSE 100 on Thursday.
The stock jumped 7% higher as markets opened before settling back to a 6% gain at 4,660p as the Grocer went to press. It puts Unilever up 21% so far this year and is the highest the shares have traded since November 2020 as shareholders reacted positively to CEO Hein Schumacher’s turnaround strategy.
Underlying operating profits increased 17.1% to €6.1bn in six months to June as margins jumped 250 basis points to 19.6%.
“A big improvement on margins has put a rocket underneath Unilever’s shares,” said AJ Bell investment analyst Dan Coatsworth. “Key to its success has been shifting greater volumes of products, suggesting that consumer demand for big brands is bouncing back.”
However, the results were a mixed picture, with underlying sales growth in the second quarter up just 3.9%, below analyst expectations of 4.2%, while volumes came in ahead of consensus at +2.9%.
Bruno Monteyne of Bernstein noted pressure to lure back consumers and rebuild volumes with promotions and discounts, highlighted in pricing being only up 1.6% in the first half versus 9.4% a year ago.
“The margin beat is good news, but turnarounds aren’t margin led,” he said, warning negative real pricing is not what you want to see from brands with pricing power.
The main drag on growth in the half was the under-performing ice cream unit, which Unilever is in the process of spinning out. The division was hit by a damp squib of a summer in Europe and difficulties in China. Unilever said today that the separation was underway and on track to complete by the end of 2025.
Coatsworth countered that for a company that has faced considerable criticism in recent years for taking its eye off the ball and losing focus, Unilever now seemed to “be getting its act together”.
“There is a clear plan for how to make the business leaner and keener, and a sharper focus on the best bits of the business make perfect sense,” he added.
“The tricky part is execution and a big cost-cutting drive, including the removal of thousands of jobs, won’t be good for morale inside the business. Therefore, while the latest results offer some hope that its new plan is off to a good start, it won’t always be plain sailing from here.”
Nestlé also highlighted the challenges of winning over cost-conscious shoppers as the Swiss food giant revised down its organic sales growth guidance for the year from 4% to at least 3%.
First-half sales came in slightly below expectations, increasing just 2.1%, with CEO Mark Schneider warning prices was coming down faster than expected.
Shares at Nestlé sank more than 4% to CHF 89.64 as markets reacted to the disappointing results.
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