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Unilever Plc: Solid 3Q18 trading statement

24 October 2018

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by Anchor

Unilever, in its 3Q18 trading update released on Thursday (18 October), indicated that underlying sales growth increased by 3.8% YoY to EUR12.5bn in revenue. The company was also able to generate volume growth of 2.4%, with pricing growth of 1.4%, highlighting the strength of its brands and the customer loyalty it enjoys. Unilever posted growth across all of its divisions, with its innovation programme helping to boost the firm’s overall performance. We note though that price growth in Argentina was excluded from 3Q18 underlying sales growth “due to hyperinflationary status … Reported growth would have been 4.5%… “ according to Unilever.

In emerging markets (EMs), growth accelerated to 5.6% with good volume growth (at 3.4%). Among EMs, the strongest performances were in India and in Turkey, with both growing at near double-digit volume in the quarter under review. In developed markets (DMs), growth stood at 1.3% with a recovery in North America following a weaker first half, while in Europe, “a combination of good weather, strong execution and strong innovation help the ice cream business to continue its growth”, according to management.

On the conference call, Unilever management noted that actions were taken to evolve the firm’s portfolio and build a presence in new channels – 10 new brands have been launched YTD and the Group’s e-commerce business is growing at 50% YTD.

In terms of performance by division, growth accelerated across all three of the company’s core segments:

1. In Foods and Beverages, the summer heatwave in Europe boosted ice cream sales in a year where the company introduced a new Kinder product. Underlying sales growth improved to 3.2%.

2. Beauty & Personal Care grew by 4% in 3Q18, with 2.8% volume growth. Unilever reported good growth from both core and new brands as the positive momentum in skin care continued across Ponds and Vaseline ranges. In skin cleansing, Lux and its premium mix formats in Dove also continued to perform well. The firm’s prestige unit grew by double digits with strong performances on all brands including a recovery in Murad. The firm said that Hourglass, its most recent prestige acquisition, is growing at 40% and was included in its growth numbers from August.

3. Turning to Home Care, this segment increased by 4.5% YoY in 3Q with an acceleration of pricing to 3% on a pick-up in Brazil following the trucker strike in 2Q18. In cleaning products, the company said growth was driven by a strong performance from liquids in EMs.

Unilever also confirmed in the update that it has completed the successful disposal of its spreads business. The company said it expects underlying sales growth at the bottom end of its 3%-5% YoY forecast range, an improvement in the underlying operating margin and strong cash flows. However, Unilever highlighted that commodity inflation looks like it will be a stronger headwind for some time to come. Nevertheless, the company said it continues to make steady progress towards its 2020 margin target and expect another year of strong cash flow ahead.

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