Unilever Sales Surge: Setting Sails beyond expectations

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After two years, Unilever has been able to celebrate the highest price growth. Shares rose by 5.1% in the second quarter, soaring well above the 2.6% median estimate of 9 analysts surveyed by Bloomberg News.

Product Promotion

The high price growth may be attributed to the introduction of products such as Magnum ice cream in the U.S. , Dove deodorant in Thailand and Axe and skin care products in China. The company said that around 30% of revenue if from the products launched in the last two years, and the company plans to introduce more than 60 projects in more than 10 markets, a large step in comparison to 40 in 2010 and 9 in 2009. The company intends to roll out more products in the second half of the year and plans to devote the same sum of 3 billion euros as spent in the first half to advertising and promotions.

The companys chief financial officer, Jean-Marc Huet states that, As well as innovating faster, we are taking our products into new markets.

Paul Polman, the chief executive officer accelerated the introduction of new products such as Lipton Sun Tea and pushed items such as Knorr jelly bouillon into new countries like China, and repackaging them in sachets. Following the global financial crisis, he had offered promotions for several products, but as a season of change sweeps over the global economy, he has increased the prices again, in order to combat the costs of ingredients such as palm oil and sugar. Thompson also stated, this is likely to be a top quartile performance through the results season and represents easily the best performance since Paul Polman was appointed as CEO.

While the analysts anticipated a growth of 5.8%, the London and Rotterdam based company has its sales advance by 7.1%, excluding the effect of acquisitions, disposals and currency fluctuations.

Shares on the Rise

Unilever achieved the biggest inter-day advance since the 6th of August, 2009, rising by 6.7% in Amsterdam trading. The stock was up by 5.8% yesterday rising it to 23.38 euros and bringing the companys market value to 71 billion euros.

The tough strain

Western Europe

Boosted by Germany and France the companys sales in Western Europe went up by 4.8% in the second quarter. Huet stated that this market has been the most challenging and he hopes that, Europe doesnt dilute the beautiful growth we have seen elsewhere.

The most important markets for the company are in the U.S. and Western Europe, where purchases of consumer products has been stagnating.

13 analysts surveyed by Bloomberg the net income to climb to 2.06 billion euros, but Unilever attained a 9.8% climb bringing it to 2.2 billion euros in the first half. Sales grew 4.1% to 22.8 billion euros.

Competition

The company is worlds second largest consumer product manufacturer, while Procter and Gamble stand as the first.

Unilever faced intense competition in its laundry business for products such as Surf and Comfort. The surge in commodity prices increased the struggle narrowing the underlying margin for the home-care unit by 330 basis points.

As the company raised prices and cut advertising and promotional spending Unilevers underlying operating margin, a measure of profitability, fell by 20 basis points in the first half. The company said in April it expected commodity costs would amount to between 500 and 550 basis points of revenue this year, an increase from a February forecast of 400 basis points.

Commodity prices

Polman takes an optimistic view point sees the market prices for commodities stabilizing for the rest of the year. Although he expects that the second half of the year will be quite challenging. The company expects prices to further rise in the second half, said Huet, adding that competitors have a lot of pricing room to catch up with Unilever this year.

The organization is being more aggressive with its products such as bar soaps and spreads in order to tackle with the more, volatile raw material costs of these products.

Despite the tight market in Western Europe, Huet states that, Volume growth is basically in line with markets. Volume is so important to us and has accelerated in savory, ice cream and oral care. Its just testimony to the strength of our brands that we are able to take this type of pricing, and yet that volume growth continues.

Analyst, Graham Jones at Panmure Gordon supports their confidence, “Unilever’s results in our view look impressive, showing a sharp acceleration in sales growth.” Harold Thompson, an analyst at Deutsche Bank in London states that Unilevers results from the first-half are very strong, suggesting that investors should take advantage of the profits and buy the stock.

Sources: Bloomberg, The Source, Reuters

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