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Unilever Q3 Underlying Sales Meet Expectations

The consumer goods giant said it anticipates organic sales growth in the lower range of 3 percent to 5 percent in 2018.

PARISUnilever on Thursday reported underlying sales grew 3.8 percent in the third quarter, in line with financial analysts’ expectations.

The consumer goods giant, parent of brands ranging from Dove and Vaseline to Ben & Jerry’s and Lipton, released its numbers less than two weeks after shelving a decision to move to the Netherlands, after major institutional shareholders said they would vote against it.

The company has a dual-headed corporate structure, with headquarters in London and Rotterdam, and is quoted on the London Stock Exchange and in Amsterdam.

Graeme Pitkethly, chief financial officer at Unilever, addressed the setback in a conference call with analysts.

“Over the past few months, we had a really very rich and fulsome period of engagement with our shareholders, discussing and listening to views on the simplification proposals. Now we are disappointed about the outcome, but encouraged that we heard a strong endorsement for the strategic objectives of unification, despite there being challenges around the mechanics,” he said. “The board will now consider its next steps and will continue to engage with shareholders.”

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Pitkethly also reiterated Unilever’s plans to cancel the NV preference shares. Those currently account for 1 percent of outstanding shares, but 20 percent of the company’s voting rights.

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The company’s sales in the three months ended September totaled 12.53 billion euros. On a reported bases, sales declined 4.8 percent, weighed down by currency effects and the impact of acquisitions and disposals.

“Q3 organic growth bounced back strongly from a slightly disappointing Q2 [plus 1.9 percent], which was impacted by strikes in Brazil that cut 120 basis points from growth,” Andrew Wood, analyst at Sanford C. Bernstein & Co., said in a research note, referring to the underlying numbers, which exclude Argentina pricing. “Some, but not all, of that growth was recovered this quarter.”

Oddo BHF analyst Pierre Tegnér noted the third-quarter organic growth “shows good quality in both volume and price.”

Unilever’s quarterly like-for-like sales gained 4.5 percent, beating consensus. Sales in reported terms declined in all geographic areas, but were up on an organic basis.

“Region and category patterns were in line with our expectations, with [emerging markets] and particularly Asia benefiting from Brazil rebound and the lapping of [the goods and services tax] in India,” wrote Jefferies analyst Martin Deboo.

Unilever has launched 10 new brands this year, and its e-commerce sales have grown 50 percent year-to-date. All three of the company’s business units posted solid gains in the three months ended September.

Organic sales in the beauty and personal-care division rose 4 percent, boosted by improved price growth, with 2.8 percent coming from volume. “Price growth stepped up in response to increasing commodity prices, in particular crude oil and chemicals. We saw good growth from the core and our new brands,” Pitkethly said. “The good momentum in skin care continued across Pond’s and Vaseline, and in skin cleansing, Lux and the premium mousse formats in Dove continued to do well.”

The executive noted Dove is growing more than 7 percent year-to-date, and Pond’s has returned to midsingle-digit gains after an extended period of “subdued performance.” “The new Dove Self-Esteem campaign, which leverages mainstream entertainment with Cartoon Network, is landing very well, and Dove was recently accredited by PETA as a cruelty-free brand,” he continued.

Deodorants registered a much stronger quarter, led by a recovery in Brazil and purpose-led campaigns from Rexona and Dove Men + Care.

Unilever’s prestige unit notched up double-digit gains, thanks to solid performances from all brands, including a recovery in Murad.

“Hourglass, which is our most recent prestige acquisition, is growing at nearly 40 percent, and came into our growth numbers from August,” said Pitkethly. “Hourglass is not only a fast-growing business, but it’s also bringing purpose to prestige beauty through its commitment to being entirely vegan by 2020.”

Love, Beauty & Planet, a new brand launched in the U.S. nine months ago, is now in eight markets spanning North America and Europe. Starting as a hair and skin-cleansing brand, its product portfolio now includes skin care and deodorants. “With its use of recycled plastic and vegan skin care, it’s a very good example of how we are evolving our brand portfolio,” Pitkethly said.

He said Unilever continues to produce stronger local innovations, such as St. Ives facial masks in the U.S. and Axe Ticket, a deodorant format being expanded in India.

“For 2018, we expect full-year underlying sales growth to be at the bottom end of our multiyear range of 3 to 5 percent, possibly even a little higher, with a nice balance of price and volume,” the executive said.

Pikethly added: “This is made more difficult on a reported basis with the accounting changes in Argentina, but we expect to make it. Commodity inflation looks like it will be a stronger headwind for our sector for some time to come. Nevertheless, we continue to make steady progress towards our 2020 margin target, and expect another year of strong cash flow.”

Unilever will hold its general meetings for Unilever NV and Unilever PLC shareholders on Oct. 25 and 26, respectively.