Dove-to-Domestos maker Unilever’s (ULVR) shares rose 1.2% to £47.59 on the news organic sales grew 4.4% in the third quarter, marking an accelerating versus the second quarter and coming in comfortably ahead of the 1.3% growth called for by consensus.

A year ago, the packaged consumer goods colossus was wrestling with the problem of how to stimulate top line growth, but the Covid-19 pandemic has created a backdrop which plays to its strengths.

VOLUME-LED GROWTH

Emerging markets drove the FTSE 100 giant’s stronger-than-anticipated return to growth in the quarter. Underlying revenues from developing economies rose by 5.3% as China’s recovery continued and India and Brazil returned to growth.

Meanwhile, the Magnum ice cream-to-Hellmann’s mayonnaise maker reported 3.1% organic growth in developed markets, led by ongoing strength in North America.

Encouragingly, Unilever’s 4.4% year-on-year organic growth reflected very healthy 3.9% volume growth with the 0.5% balance coming from price.

Like Reckitt Benckiser (RB.) and other consumer goods companies, Unilever has seen strong sales growth in home care products beyond the initial lockdown phase.

In today’s update, the company flagged particularly strong demand for household cleaners such as Domestos to combat the spread of Covid-19 and in North America, Unilever is seeing elevated demand for foods consumed at home.

During the quarter, the out of home ice cream businesses continued to decline, although laundry and hair returned to growth and Unilever’s e-commerce business grew by an impressive 76%.

AGILE AND RESILIENT

‘Volume-led growth shows the resilience of our portfolio and our agility in responding to rapidly changing dynamics across consumer segments, geographies and channels,’ insisted chief executive Alan Jope.

Nevertheless, he cautioned ‘the environment we are operating in will remain unpredictable in the near term, so we will continue to maintain the speed and agility of our response. Our focus remains volume-led competitive growth, delivering absolute profit and free cash flow.’

THE EXPERTS’ VIEW

Oghma Partners’ Mark Lynch said: ‘Another strong set of revenue figures highlights the maintained shift from out of home to in home spend and also the trend of “comfort buying”; in a world where trust is in short supply consumers are shifting back to brands which are trusted and well known.

‘In many respects the purchasing decisions are therefore the pay-back for sustained brand investment and brand building which in some cases, like Marmite, stretches back over a century to 1902.’

AJ Bell investment director Russ Mould commented: ‘Households and businesses are taking hygiene much more seriously than before, which is music to the ears of companies selling disinfectants, bleach and other cleaning items.’

But the next challenge for Unilever is ‘what to do if a vaccine is successfully developed. Unilever will have to keep banging the drum that it pays to keep your house and yourself clean, otherwise it could see sales trends revert to pre-Covid levels and growth concerns back on the agenda.’

READ MORE ON UNILEVER HERE

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 22 Oct 2020