- Growth accelerates to 10.6% in Q3
- Record price hikes impact volumes
- Warns of ‘more negative underlying volume growth’ ahead
Consumer goods colossus Unilever (ULVR) raised its full year sales growth guidance to ‘above 8%’ after the Dove soap, Marmite and Magnum ice cream maker’s underlying sales growth accelerated to 10.6% in the third quarter.
Unilever also maintained its full year operating margin guidance at 16% and continues to expect to improve its return on sales in 2023 and 2024 through pricing, product mix and savings.
However, the FTSE 100 giant also reported declining sales volumes as price rises forced some cash-strapped consumers to switch to cheaper products and highlighted a bleak consumer outlook in both emerging and developed markets, leaving the shares flat at £38.70 on Thursday.
DOES UNILEVER POSSESS PRICING POWER?
Unilever hiked its prices by 12.5% in Q3, its highest ever quarterly increase, in order to pass on cost inflation to customers.
This drove robust underlying sales growth, yet price increases also triggered a 1.6% decline in volumes and Unilever warned of ‘more negative underlying volume growth’ to come in the final three months of the year.
For 2022, the company’s inflation expectation is ‘virtually unchanged’ at around €4.5 billion.
Although some commodity prices have softened from peaks, Unilever expects cost pressure to ‘carry forward into 2023, driven by currency devaluation, higher raw material costs versus beneficial covers in the first half of 2022, and higher supplier processing costs from energy and labour inflation’.
CEO Alan Jope, who plans to retire from the company at the end of 2023 after a difficult five years in the hot seat, insisted Unilever had delivered ‘another quarter of growth in challenging macroeconomic conditions. Underlying sales growth improved to 10.6%, led by further increases in pricing with only a limited impact on volume, and we now expect underlying sales growth for the full year 2022 to be above 8%.’
Jope also highlighted strong performances from Unilever’s billion+ Euro brands led by Lux, OMO, Hellmann’s, Rexona and Magnum.
‘The global macroeconomic outlook remains mixed,’ warned Jope, who expects ‘the challenges of high inflation to persist in 2023’.
WHAT DOES UNILEVER NEED TO FIX?
Charlie Huggins, head of equities at Wealth Club, said Unilever’s ‘solid’ third quarter ‘comes too little, too late’ for Jope.
‘The recent news that he is being relieved of his duties comes on the back of several years of disappointing performance. The next leader of Unilever faces a monumental task. Unilever’s basic problem is that it’s too big, with over 400 brands sold into more than 190 countries. This makes Unilever much less agile and entrepreneurial than smaller competitors.’
Whilst Unilever owns strong brands and has excellent positions in emerging markets, Huggins believes it ‘needs cultural change, and probably more disposals, for that value to be unlocked. Shareholders will be hoping the new CEO can be the catalyst to make that happen.’
