Unilever plc (ULVR) Ord 3.11p

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Unilever reported first-quarter revenue of €14.8bn, reflecting underlying sales growth of 3.0% (2.8% expected). Growth was driven by a 1.7% increase in prices and a 1.3% rise in volumes.

All segments saw positive volume growth, except for Foods. By region, North America showed strong performance, offsetting weakness in China and Indonesia.

A demerger and separate listing of shares in the Ice Cream division is on track for the fourth quarter of 2025.

Unilever declared a quarterly dividend of €0.4528 per share and reiterated full-year underlying sales growth guidance of 3-5%.

The shares rose 0.9% in early trading.

Our view

Unilever's first quarter results showed resilient growth, primarily driven by pricing after a year focused on volume recovery. The new CEO’s optimism about a business turnaround and the anticipated recovery in emerging markets is promising. However, this hinges on precise execution amidst economic and tariff uncertainty.

The broader market is looking a little weaker in the early part of the year, and Unilever isn't the only one in the sector bracing for a challenging couple of quarters. Performance is expected to improve as the year progresses, with some tailwinds, like price actions, likely to kick in. But growth being weighted to the second half adds a bit of risk.

The outlook on margins for the year remains intact, with the gross margin reaching its highest level in a decade. This is a clear sign that strategic actions are starting to take effect, and we see potential for expansion in the coming year, despite cost and currency headwinds.

It’s important to consider the indirect effects of tariffs on consumer sentiment and purchasing. We believe Unilever's strong brands and ability to pass on costs should ensure its resilience.

We’re supportive of the group’s sharper focus, which is concentrated on doing fewer things but doing them better. That means spinning off its Ice Cream business and plans to cut costs over the next few years are at the top of the agenda, and so far, we’re impressed with the pace of progress.

The group’s collection of 30 so-called ‘Power Brands’ is its beating heart. These include names like Dove, Domestos, and Hellmann’s, making up around 75% of total sales. We expect continued investment behind these names, with brand and marketing investment now standing at 15.5% of revenue, its highest in a decade.

The 3.5% prospective forward dividend yield and latest 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, there are very clear signs that the new management team are making progress and Unilever remains a quality business with attractive fundamentals. If it can deliver on planned cost cuts and spin-off Ice Cream without causing too much damage, then achieving consistent mid-single-digit sales growth is on the cards. The valuation isn’t too demanding, but there is a softer market to contend with and there’s plenty of execution risk ahead.

Environmental, social, and governance (ESG) risk

The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.

According to Sustainalytics, Unilever’s overall management of material ESG issues is strong.

Unilever's latest sustainability efforts followed global reporting standards, with the board overseeing progress and a dedicated committee tracking risks and goals. The company focuses on three main areas: improving planet health, enhancing people’s wellbeing, and fostering social inclusivity, with ambitious targets like 100% recyclable packaging by 2025 and biodegradable ingredients by 2030. However, Unilever faces criticism for its plastic pollution and struggles to meet some of its plastic-related goals, suggesting there's still work to be done.

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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