Key Takeaways From Unilever’s Fiscal First Half Results

by Trefis Team
Unilever Group
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Unilever (NYSE:UL) reported stronger than expected fiscal first half earnings on Wednesday, July 20, as it benefitted from its new growth strategies. The company’s stock has increased by over 40% year-to date, and hit a new 52-week high after the earnings announcement.

Key takeaways from the first half results are below:

  • Unilever’s turnover increased 5% year-over-year (y-o-y), including a 1.7% positive currency impact, primarily due to growth in all categories, excluding spreads. This growth is fairly impressive given the tough market conditions in some international markets. The company’s organic growth of 3% was led by higher pricing, as the company saw underlying price growth (UPG) of 3% and flat volumes in the first half.
  • Emerging markets play a vital role in the company’s health, as almost 55% of its total revenues come from these markets. However, market conditions have remained challenging in the first half of 2017, driven by virtually flat volumes. Economic conditions in Brazil continued to present significant headwinds, while trade stock levels weakened in the second quarter ahead of the implementation of the Goods and Services Tax (GST) in India.
  • The company’s gross margin improved by 40 basis points (bps) to 43.1%, driven by accretive acquisitions as well as progress in the company’s cost saving programs.

Unilever’s diluted earnings per share for the first half was up 24% y-o-y at €1.09. Unilever’s food division’s (including spreads) organic sales increased 0.6% year-over-year with negative volume growth. However, the company reported 2% growth, along with better volumes, after excluding spreads from the results. The company intends to divest its spreads business going forward, and accordingly began reporting its food sales excluding spreads from the first quarter itself.

The company’s Personal Care segment grew 2.6% y-o-y with flat volumes. However, the trade disruptions taking place in Brazil, India and Indonesia have particularly affected volumes in this segment. Home care grew by 3.3% y-o-y, with volumes up by just under 1%, while Refreshments grew by 6.1% y-o-y, primarily driven by innovation behind brands like Ben & Jerry’s.

Unilever’s free cash flow was €600 million higher than in the first half of last year at €1.4 billion, and the company expects the second half to continue this strong momentum. The company also raised its full year margin expectations. It now expects its underlying operating margin to grow by at least 100 basis points this year as compared to a previous target of 80 basis points. Going forward, the company expects increased investment in brands and marketing in the second half of the year, which could help grow volumes in the Personal Care segment. The company expects its underlying sales growth to be in the range of 3% to 5% for 2017.

See our complete analysis for Unilever here

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