Unilever: Guidance Raised as Sales Pop on Higher Prices, Volume Weakness Continues

Written by: Matt Britzman | Hargreaves Lansdown

Unilever posted third quarter sales of €15.8b, reflecting underlying sales growth of 10.6%. Growth was broad based across divisions, fuelled by higher prices which more than offset a 1.6% drop in volumes.

Personal and Home Care divisions saw the largest volume declines, 4.1% and 3.6% respectfully. Equally, both divisions had the largest price hikes too.

The quarterly interim dividend for the third quarter is maintained at €0.4268. The second tranche of the ongoing buyback will see a further €750m of shares repurchased by December 2022.

Unilever now expects underlying sales growth for the full year to be above 8%, with more negative underlying volume growth. Expectations for underlying operating margin remains at 16%, with cost pressures expected to continue into 2023, albeit at a lower level.

This was a relatively strong quarter from Unilever, with revenue and underlying sales growth both ahead of expectations, giving management confidence to push full year sales outlook higher. As we’ve been seeing with other names in the wider industry, raising prices and keeping volumes ticking higher is beginning to become a mammoth challenge, especially at the scale Unilever’s pushing through the price tags, so the 1.6% drop in volumes over Q3 isn’t all that bad. However, the group did warn volume declines are likely to accelerate up to the full year mark. That’s in line with what we’re seeing across the market, with cost pressures starting to have a bigger effect on consumer spending habits as pent up demand and savings start to fade away.

The inflation outlook was interesting too, expected to be a €4.5bn headwind this year, slightly weighted to the second half, though management did point to signs of pressures easing in some areas, commodities in particular. 2023 is projected to see that headwind pull back to around €2bn, though take that with a pinch of salt given how uncertain the cost environment is. Nevertheless, Unilever is doubling down on investment with a further increase in spending over the second half. There are risks to spending heavily into a downturn but the rewards of nailing marketing and brand awareness in uncertain times shouldn’t be overlooked.


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