Unilever ups sales guidance after price hikes help it beat forecast

Unilever Plc raised its full-year sales guidance after beating first-half underlying sales forecasts as the maker of Dove soap and Knorr stock cubes hiked prices to counter soaring costs, sending its shares up 2.9% on Tuesday.

One of the biggest consumer companies in the world, with more than 400 brands ranging from detergent to ice cream, Unilever’s costs have surged since the start of the COVID-19 pandemic created global supply chain logjams.

War in Ukraine has since boosted energy costs and sent prices of raw materials such as wheat, sunflower oil and pulp used in packaging to record highs. Unilever said it sees net material inflation at about 4.6 billion euros this year, including a 2.6 billion euro hit in the second half.

Unilever’s first-half operating profit margin fell to 17% from 18.8% a year earlier, even as Unilever raised prices by 9.8%.

The price hikes come despite retailers pushing back against consumer product suppliers, worried about ceding margins and alienating shoppers.

U.S. giant Walmart Inc, the world’s biggest retailer, on Monday slashed its profit forecast as surging prices for food and fuel prompted customers to cut back on spending.

“We did see their news this morning, but I think there are many, many aspects to that don’t fully connect with Unilever,” the British firm’s chief financial officer Graeme Pitkethly said on a call with journalists, noting that Walmart’s announcement was related more to general merchandise and clothing, and that inflation would vary by region.

However, Pitkethly added: “We expect peak inflation to come in the second half of the year. I don’t think we’ll be able to catch up in the current quarter.”

“We’re not going to go back to the previous low inflation environment – we’re going to be stuck in this environment for a significant amount of time,” said Andy Searle, a partner at consultancy Alix Partners.

SALES OUTLOOK RAISED

Underlying sales grew 8.1%, beating analyst expectations of 7.2% growth, according to a company-provided consensus for the half to June 30.

Unilever said Tuesday it now expects to beat its previous forecast for full-year underlying sales growth of 4.5% to 6.5%.

Bernstein analysts in a note described the results as “good”, with pricing better than expected and volumes in line, boding well for the company’s ability to keep investing in growth.

Investors cheered the results, with Unilever shares up 2.9% as of 0850 GMT.

“Underlying sales growth of 8.1% was driven by strong pricing to mitigate input cost inflation, which, as expected, had some impact on volume,” CEO Alan Jope said. “The challenges of inflation persist and the global macroeconomic outlook is uncertain.”

Its half-year turnover rose 14.9% to 29.6 billion euros ($30.25 billion) even as sales volumes declined by 1.6%.

CFO Pitkethly said Unilever had raised spending on advertising and branded marketing by 200 million euros in the first half to prevent shoppers from trading down to private label products.

The company kept its quarterly dividend steady at 0.4268 euro per share and said it had completed a 750 million euro share buyback tranche on July 22, part of a 3 billion euro plan announced last year.

Swiss chocolate maker Lindt & Spruengli on Tuesday also raised its sales guidance after its first-half net profit jumped 36%.

However, Compass GroupPlc, the world’s largest caterer, warned on its fourth-quarter margins citing rising costs while businesses and consumers cut spending.