Unilever Reports Highest Quarterly Price Growth Since 2009
Unilever reported the highest price growth in more than two years after introducing products such as Magnum ice cream and Knorr jelly bouillon in new markets and passing on surging raw-material costs.
The shares rose the most since 2009 after underlying price growth at the world’s second-biggest maker of consumer goods climbed 5.1 percent in the second quarter, the London- and Rotterdam-based company said today. That beat the 2.6 percent median estimate of nine analysts surveyed by Bloomberg News.
Chief Executive Officer Paul Polman, who took the helm in 2009, has accelerated the introduction of new products such as Lipton Sun Tea and pushed items such as the jelly bouillon into new countries, repackaging it into sachets for China. He’s also lifted prices again after offering more promotions following the global financial crisis in a bid to combat surging costs for ingredients such as palm oil and sugar.
“Unilever’s first-half results are very strong,” said Harold Thompson, an analyst at Deutsche Bank in London, who recommends investors buy the stock. “In what is clearly a very difficult environment for consumer-goods businesses, 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.”
Total underlying sales, which exclude the effect of acquisitions, disposals and currency fluctuations, advanced 7.1 percent. Analysts had anticipated growth of 5.8 percent.
Unilever rose as much as 6.7 percent in Amsterdam trading, the biggest intraday advance since Aug. 6, 2009. The stock was up 5.8 percent to 23.38 euros at 12:14 a.m., bringing the company’s market value to about 71 billion euros ($101 billion).
Unilever introduced Magnum ice cream in the U.S., Dove deodorant in Thailand and Axe deodorants and skincare products in China. About 30 percent of revenue is from products launched in the last two years, the company said.
“As well as innovating faster, we’re taking our brands into new markets,” Huet said. The company will introduce more than 60 projects in more than 10 markets in 2011, it estimates, compared with 40 in 2010 and nine in 2009.
The company intends to roll out more products in the second half and plans to devote “at least” the same sum to advertising and promotions as the 3 billion euros spent in the first half.
“Western Europe as a market is a very difficult one,” Huet said. In the second half, volume will “not be growing at huge levels but what we need to do is make sure Europe doesn’t dilute the beautiful growth we have seen elsewhere.” He said growth in the first half is “unrepresentative” of underlying trends in the region.
Net income climbed 9.8 percent to 2.2 billion euros in the first half, higher than the 2.06 billion euros anticipated by the average estimate of 13 analysts surveyed by Bloomberg. Sales grew 4.1 percent to 22.8 billion euros.
Competition in Laundry
Unilever’s underlying operating margin, a measure of profitability, fell by 20 basis points in the first half as the company raised prices and cut advertising and promotional spending compared with the same period last year. The median estimate of nine analysts was for a 50 basis-point decrease. The company said in April it expected commodity costs would amount to between 500 and 550 basis points of revenue this year, up from a February forecast of 400 basis points.
Danone (BN), the world’s largest yogurt maker, last week reported first-half profit that missed analysts’ estimates as it wrestled with higher costs for milk and plastic and as volume in Europe declined. Nestle SA, the world’s largest maker of food, reports earnings next week.
Polman sees the market prices for commodities “stabilizing” for the rest of the year, he said on a conference call today.
Unilever saw “intense” competition in its laundry business, whose brands include Surf and Comfort. The underlying margin at the home-care unit narrowed by 330 basis points as the surge in commodity costs exceeded price increases.
There was a “a big margin hit in Home Care, driven we would imagine, by competitive pressure” from U.S. rival Procter & Gamble Co., analysts at Investec including Martin Deboo wrote in a note to clients today.
The company expects prices to rise more in the second half, Huet said, adding that competitors have “a lot of pricing” room to catch up with Unilever this year.
“There’s no doubt the second half of this year will challenge us once more,” Polman said today. “However, we start from a position of confidence.”
Unilever targets volume growth ahead of its markets, “steady and sustainable” improvement in underlying operating margin and “strong” free cash flow.
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