Unilever improving, but unsatisfied

by Monica Watrous
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Premium ice cream products delivered a solid performance, led by Ben & Jerry’s and Magnum brands.

LONDON — Favorable currency trends and underlying sales growth helped Unilever P.L.C. deliver a 12% increase in revenue to €12.8 billion ($13.8 billion) during the first quarter. Underlying sales advanced 2.8%, ahead of the company’s expectations, with emerging markets up 5.4%, but executives remained unsatisfied.

“Growth of 2.8% is an improvement on the second half of last year, but it is still below where we wanted to be,” said Jean-Marc Huet, chief financial officer, during an April 16 call with financial analysts to discuss first-quarter performance. “In particular, it is important to our financial growth model that we rebuild momentum in underlying volume growth, which includes both volume and mix improvement.”

Underlying volume for the quarter rose 0.9%, with pricing up 1.9%. Currency translation added nearly 11% to revenue, driven by the strength of the U.S. dollar, the Chinese yuan and the Indian rupee relative to the euro.

“Importantly, for yourselves as well as ourselves, if currencies were to remain where they are today for the rest of the year, we would expect a tailwind on turnover of around 8% to 9% for the year as a whole,” Mr. Huet said. “The effect on core earnings per share would be essentially the same, perhaps a little less, but in that ballpark.”

During the first quarter, Unilever’s Foods business benefited from growth in savory products and dressings. Spreads sales improved in emerging markets but declined in the United States and Europe. The shift in timing of Easter also contributed to growth.

For the Refreshment segment, sales grew 2.5% on top of nearly 6% growth in the year-ago quarter. Premium ice cream products delivered a solid performance, led by Ben & Jerry’s and Magnum brands.

Ice creams and dressings contributed to modest sales growth in North America, as consumer confidence continued to slowly rebound. Trends improved in certain emerging markets, including China, which showed signs of stabilizing, though at “much lower levels of growth than we’ve been used to over the last couple of years,” Mr. Huet said. Challenges persisted elsewhere, however, with price deflation in Europe and deteriorating conditions in Brazil and Russia.

“The first quarter puts us on track to deliver another year of competitive top-line growth, and this combined with steady margin improvement and another consistent increase in the dividend, which underscores the long-term value that we are aiming and trying and creating from our business model,” Mr. Huet said.

The company announced a 6% increase in the quarterly dividend, consistent with the previous year’s increase.

“While currency and commodity volatility is likely to persist, at this stage of the year we do expect an improvement in volumes in the second half, but with a softening in price growth,” Mr. Huet said.

Unilever is focused on three priorities to maintain momentum in the year ahead. First, the company is increasing its investment in innovation.

“We’ve recently completed, internally, a full review of the plans for each category, as we do actually every year, and it’s without a doubt that the greater integration of R.&D. into the category organizations that’s really helped us have a much stronger pipeline today,” Mr. Huet said. “It is increasingly delivering the technologies that give us the bigger innovations based on sharper insights, clearer benefits to consumers.”

Unilever’s second priority is strengthening its go-to-market capabilities.  The company recently developed a new technology platform that enables more efficient order-taking, offers visibility of stocks throughout the supply chain, and helps drive growth in-store through better merchandising.

Unilever’s third area of focus is sharpening execution. Previously, the company made improvements in customer service and the competitiveness of its products. New initiatives include improving the discipline of sales and operations planning and reexamining its assortment of stock-keeping units in each market with an eye to offering a variety of packs at key price points.

“Our priorities do not change; they remain unchanged,” Mr. Huet said. “Firstly, profitable volume growth ahead of our markets; secondly, steady and sustainable core operating margin improvement; and lastly, strong cash flow.”
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