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Unilever - volumes hold firm in the face of continued price hikes

Unilever reported first-half revenue of €30.4bn, reflecting underlying sales growth of 9.1% which was ahead of expectations.

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Unilever reported first-half revenue of €30.4bn, reflecting underlying sales growth of 9.1% which was ahead of expectations. Growth was entirely driven by higher prices, with volumes falling 0.2%.

Underlying operating profit rose 3.3% to €5.2bn. Inflated costs were fully offset by pricing and cost savings, which helped margins improve.

Free cash flow rose €0.3bn to €2.5bn, driven by higher operating profit. Net debt at the end of the period rose €0.6bn from the end of 2022 to €24.3bn.

The Group expects underlying sales growth for the full year to be above 5%, with both cost inflation and price hikes to ease through the year.

The board announced a quarterly dividend of €0.4268.

The shares rose 5.2% in early trading.

View the latest Unilever share price and how to deal

Our view

Unilever's new CEO has delivered a strong set of first-half results. Second-quarter volumes proved especially resilient as big-hitting brands like Vaseline and Dove, plus new entrants in the premium beauty segment, helped underlying sales beat expectations.

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. And that's testament to its brand power.

Protecting the quality of those brands is Unilever's number one priority, and that comes at a heavy cost. Brand and marketing investment rose €0.4bn over the half and increased spend is expected to continue. That's all part and parcel with the Group's strategy of locking in long-term customers with well-known, trusted, brands.

There are other levers to pull too. 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, 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.

There are pockets where improvement's needed. The number of products winning market share is falling, now at 41%, as lower margin products are being removed and consumers are favouring lower price areas that Unilever doesn't want to operate in. The expectation is for trends to improve again and for that figure to push back toward 50% over the medium term. We're inclined to agree, but it's something worth keeping an eye on.

The 3.9% prospective forward dividend yield and ongoing buyback are currently supported by strong free cash flow and a robust balance sheet. Dependability is an attraction, and we don't see too much upsetting the apple cart here. But, as ever, potential returns can't be relied on.

All in, Unilever looks well-positioned to continue delivering solid performance under tricky conditions. The valuation sits below the longer-term average, which could prove attractive if the new CEO can navigate a challenging short-term environment. Of course, nothing is guaranteed.

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: 25th July 2023