As the first-half earnings season draws to a close, the latest results have offered valuable insight into how fast-moving consumer goods (FMCG) companies are navigating changing consumer behaviour, pricing dynamics and volume trends. These businesses sell everyday products from ice cream and toothpaste to cosmetics and pain relief, making them a useful barometer of consumer spending habits.
It has been a pivotal period for the sector.
Over the past couple of years, many FMCG businesses have reshaped their operations through disposals, reporting changes, and efficiency programmes. These results provide an early indication of whether those decisions are translating into stronger organic growth and improved profitability.
The first half was marked by an uncertain backdrop, with inflation concerns, geopolitical tensions and shifting consumer spending patterns continuing to test demand.
So, we’re looking at the key drivers behind earnings, and which companies appear best positioned for the road ahead.
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Growth drivers – price vs volume
One of the clearest themes from earnings season was the return of volume-led growth.
After several results where higher prices did most of the heavy lifting, investors wanted evidence that consumers were buying more products rather than simply paying higher prices for the same basket of goods.
The results were largely encouraging.
Unilever and Haleon generated most of their growth from higher volumes, suggesting demand held up well despite a tougher backdrop. Magnum also struck a healthy balance between volume growth and positive price/mix (higher average selling prices), helping deliver one of the strongest growth profiles in the peer group.
Reckitt was the notable exception with growth driven almost entirely from price hikes, while volumes turned slightly negative. Pricing remains an important tool for protecting profitability, but investors tend to place greater value on businesses that can grow volumes as well as prices.
Companies demonstrating stronger volume growth provided greater confidence that recent sales gains were being driven by underlying demand rather than pricing alone. However, investors wanted more than just top-line growth. The companies that impressed most were those that paired healthy volume trends with resilient margins and a clear path to future earnings growth.
Margins and profitability
Revenue growth was only half the story this earnings season. Investors also wanted to know whether stronger sales were translating into profits, and for the most part, they were.
A key theme across the sector was the benefit of productivity programmes and portfolio reshaping. Over the last few years, many of these companies have streamlined operations and focused investment on their most profitable brands and categories. Those efforts are now beginning to feed through into earnings, helping grow profits despite a challenging backdrop.
Haleon delivered the strongest margin expansion in the peer group, while Magnum increased margins as a standalone business and grew operating profit faster than sales. Unilever’s margins were broadly stable as management balanced efficiency gains with continued investment behind brands and innovation.
Reckitt was the outlier, with margins and profits declining sharply as the sale of its Essential Home business weighed on its reported performance. However, the impact was less severe than expected.
While efficiency gains have been an important driver of profit growth, they can only go so far. Companies need sustainable sources of revenue growth to keep profits moving in the right direction.
Emerging markets remain one of the sector’s most important opportunities, particularly for Unilever and Reckitt, which generate a significant proportion of their sales from the faster-growing regions. Rising incomes and faster population growth in these regions continue to provide a structural growth opportunity that many developed markets struggle to match.
Interestingly, all four companies beat profit expectations. That suggests investors entered earnings season with cautious assumptions, reflecting the ongoing concerns around consumer spending, execution risk, and margin pressure. As the results showed, cost inflation proved more manageable than feared, productivity programmes continued to deliver, and demand remained resilient.
However, execution risk remains, and long-term success will depend on companies continuing to innovate, win market share and capture growth in emerging markets.
Where they stand now
Unilever appears to be moving from turnaround to execution. Strong volume growth suggests the group's focus on simplifying the business and concentrating resources behind its biggest brands is gaining traction. The key test from here will be whether it can sustain that momentum as it moves beyond the initial benefits of restructuring.
Magnum delivered an encouraging set of results as a standalone business. Having separated from Unilever back in December, the focus now shifts to demonstrating that greater operational focus can deliver consistent growth and profitability improvements over the longer term.
Haleon's results were solid, particularly on profitability. But we will be looking for evidence that growth can become more broad-based across the portfolio, reducing reliance on Oral Health and creating multiple drivers of future growth.
Reckitt remains the most complex story in the group. Ongoing litigation and portfolio reshaping continue to cloud the investment case. We’re still waiting to see clearer signs that those changes can translate into stronger volume growth, improved profitability and a more balanced growth profile.
What it means for investors
The biggest takeaway from this earnings season is that investors' priorities are shifting.
For several years, FMCG companies relied heavily on price increases to offset inflation and protect margins. While pricing remains important, the latest results suggest volume growth is beginning to play a larger role in performance.
As a result, the strongest performers weren’t necessarily those delivering the fastest sales growth. Instead, success came from striking the right balance between investing in demand and protecting profitability. Advertising and product innovation remain key drivers of top-line growth, but the focus is shifting to whether those investments are translating into stronger earnings too.
The companies best positioned for the years ahead are likely to be those that can combine improving demand trends with disciplined execution and exposure to attractive long-term growth markets.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.