Unilever has seen volumes increase for the first time in 10 quarters as its new Chief Executive starts to implement his plan to reinvigorate the group’s performance.
Over the year to 31 December, the consumer goods giant saw its underlying sales increase 7%, with its Personal Care (+8.9%) and Beauty & Wellbeing (+8.3%) units the star performers, followed by Nutrition (+7.7%), Home Care (+5.9%), and Ice Cream (+2.3%).
Whilst the majority of growth came from price increases (+6.8%), Unilever did manage a 0.2% rise in volumes, driven by 1.8% gain in the fourth quarter as easing inflation encouraged customers to buy more.
However, the group noted that the percentage of its business winning market share on a rolling 12-month basis was disappointing at 37%. It admitted that this reflected share losses to own-label in Europe, consumer shifts to super-premium segments in North America where it is currently under-represented, and a reduction of unprofitable SKUs globally.
“Today’s results show an improving financial performance, with the return to volume growth and margins rebuilding,” said Hein Schumacher, who took over the CEO role from Alan Jope last year. “However, our competitiveness remains disappointing and overall performance needs to improve.”
After years of disappointing returns compared to its rivals, Unilever’s profitability improved slightly in 2023. Underlying operating margin was up 60bps to 16.7% following a 2.6% increase in profit to €9.9bn.
Like other consumer goods companies, Unilever has fought to maintain its margins after facing a surge in costs. However, the exercise has revealed the limits of its brand power as cash-trapped consumers started to trade down to own-label and cheaper goods.
Towards the end of last year, Schumacher set out his plans to overhaul Unilever’s performance and accelerate growth. His strategy includes focusing on the company’s 30 strongest brands, with increased investment in marketing and innovation. It is also shifting its portfolio into more premium segments and recently announced the acquisitions of K18 and Yasso and disposals of Elida Beauty, Dollar Shave Club, and Suave in North America.
The moves are said to have the backing of activist investor and board member Nelson Peltz, who started building a stake in Unilever after its botched attempt to buy GSK’s consumer health division.
“We are at the early stages of this work and there is much to do but we are moving with speed and urgency to transform Unilever into a consistently higher-performing business,” Schumacher said today.
Buoyed by the launch of a buyback, Unilever’s share price rose as much as 4% this morning, hitting its highest point since it last reported earnings in October.
“There is still plenty of work to be done in terms of competitiveness and regaining market share,” said Aviva portfolio manager, Richard Saldanha. “Given the valuation discount, especially when compared to US peers, we think investor patience may be ultimately rewarded.”
Analysts and investors have been warning Unilever and other big consumer goods firms that restoring volume growth and regaining lost market share will be tough given the weak market conditions and shift to supermarket own-label.
Unilever said today that it expects “modest improvement” in underlying operating margin for the full year and underlying sales growth in the 3% to 5% range, with “more balance” between volume and price.
NAM Implications:
- Stripping out inflation reveals the extent of the damage…
- …caused by their consumers switching to own-label equivalents of their brands.
- (thereby calling into question the size of brand premia)
- Meanwhile, not even at the end of the beginning of the required turnaround…
