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Unilever - sales beat expectations as big brands shine

Unilever reported first-quarter revenue of €14.8bn, reflecting underlying sales growth of 10.5%.

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Unilever reported first-quarter revenue of €14.8bn, reflecting underlying sales growth of 10.5% - well ahead of market expectations. Higher prices were the sole driver of growth, up 10.7%, which helped offset a 0.2% drop in volumes.

Growth was led by the Group's larger 'billion+ Euro' brands, spread across the full range of business units and geographies.

Underlying sales growth for the year is expected to be at the top end of the 3-5% ongoing target range. Price hikes are expected to continue over the first half and soften through the year.

The board announced a maintained quarterly interim dividend of €0.4268. In March, the Group announced a third €750m tranche of the ongoing €3bn buyback.

The shares rose 1.2% in early trading.

View the latest Unilever share price and how to deal

Our view

Unilever looks to be starting 2023 in a similar fashion to how it ended 2022. Double-digit price hikes are on the menu, with core brands performing well, helping prop up performance in a challenging environment.

9 consecutive quarters of price hikes are taking their toll on volumes, but they were considerably more resilient than some had feared. This isn't a Unilever-specific issue, as we've seen with other names in the wider industry. Raising prices and keeping volumes intact is a mammoth challenge. We're pleased with how this is being managed.

In Unilever's case, a small drop in volumes when the Group's pushing hefty price hikes onto consumers isn't the end of the world. They've kept demand somewhat intact due to the host of strong branded products in the armory. The 14 largest brands accounted for 54% of group revenue and were the shining light of the quarter. In unfavorable conditions, brand power is king.

It's for that reason, protecting the quality of those brands is Unilever's number one priority, and that comes at a hefty cost. Brand and marketing investment rose €0.5bn last year and is expected to rise again in 2023. That's all part and parcel with the Group's strategy of locking in long-term customers with well-known, trusted brands.

This part of the business is non-negotiable, so if revenue starts to weaken margins will come under pressure.

Luckily there are other levers to pull. The Group's shifted its organisational structure following a period of lacklustre growth and pressure from investors. The €600m cost-saving program, weighted toward the second half of 2023, certainly sounds promising. It was also good to hear cost inflation's in line with expectations and is poised to ease from here out.

Turning a beast like Unilever into a streamlined outfit isn't a quick process. But armed with a new CEO and a better focus on more profitable businesses, we're optimistic.

Free cash flow's expected to be around €6.5bn this year and net debt was 2.1 times cash profits (EBITDA) last we heard, which helps underpin ongoing investment and the dividend. There's a prospective yield of 3.3% on offer. Please remember there are no guarantees.

The Group's valuation sits a touch below the long-term average but has moved higher in recent months as markets price in a slightly better outlook. This could still prove attractive if the incoming CEO can navigate the turbulence effectively. But of course, there are challenges ahead.

Unilever key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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 Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 27th April 2023