Unilever boosted by high-margin products despite ongoing cost-of-living crisis
Unilever, which makes Sure deodorant, Dove soap and Hellmann's condiments, among many other brands, did not meet market forecasts on sales volumes, which rose 3.9%, behind expectations of 4.2%
Unilever, the Anglo-Dutch consumer goods giant, has reported a significant increase in margins after its more profitable products sold well amid a global cost-of-living crisis.
The company's shares rose late this week following an announcement of a 19.6% rise in operating margin across the group. Consumer goods companies are currently striving to encourage consumers to buy more products, often through discounts and promotions, as people grapple with higher living costs in many global economies.
Despite not meeting market forecasts on sales volumes, which increased by 3.9%, falling short of the expected 4.2%, Unilever's substantial margin growth contributed to a £4.6billion ($5.9billion) operating profit during the period. This represents a 7% year-on-year increase, which was welcomed by investors, leading to a 6% rise in Unilever's share price in Thursday morning trading.
Analysts attribute this partly to lower commodity prices and previous price increases due to high inflation in recent years. However, they also point to strong sales of high-margin products, despite the economic climate.
Unilever refers to these top-selling items as "power brands", including Hellman's and Knorr stocks and seasonings, which alone generated over £3.1billion ($4billion) in combined turnover. Overall, the group's turnover was £24.1billion ($31.1billion), marking a 2.3% increase compared to the same period last year.
Unilever, currently in the midst of a challenging turnaround effort, plans to cut about a third of all office jobs in Europe by the end of 2025. The company also intends to sell its ice cream business, which includes Wall's, Ben & Jerry's and Magnum brands, within the same timeframe.
Unilever's chief executive, Hein Schumacher, stated that the company has made progress on "high-quality sales growth and gross margin expansion". He explained that the turnaround plan involves "doing fewer things, better and with greater impact".
"The implementation of a comprehensive productivity programme and the separation of Ice Cream are key to delivering on that commitment and we are progressing at pace. There is much to do, but we remain focused on transforming Unilever into a consistently higher-performing business."
Chris Beckett, head of equity research at Quilter Cheviot, commented that the increase in margins is a "big win" for Unilever and that it has "done well" to sell more high-margin products. He further noted that emerging markets are "doing a lot of the heavy lifting in terms of growth" for the company.
Unilever anticipates annual sales growth to be between 3% and 5%, maintaining its previous forecast, while operating margin is expected to be at least 18%. The company also revealed that the conflict in Gaza has impacted sales in countries with majority Muslim populations such as Indonesia, which usually accounts for about 4% of the company's sales.
"Some consumers avoided the brands of multinational companies in response to the geopolitical situation in the Middle East," Unilever stated.