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Unilever Third-quarter Sales Beat Expectations

The consumer goods giant raised its guidance for the year, with sales growth being driven by price inflation.

PARISUnilever’s underlying sales growth picked up pace in the third quarter of 2022, spurred by price inflation with a limited impact to volume, causing the group to raise its guidance again for the full year.

The maker of brands ranging from Dove and Tatcha to Ben & Jerry’s and Magnum generated sales of 15.8 billion euros in the three months ended Sept. 30, up 10.6 percent on an organic basis and 17.8 percent in reported terms versus the same prior-year period.

The organic growth came in 260 basis points ahead of financial analysts’ consensus, according to Bruno Monteyne, an analyst at Bernstein, in a note.

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Unilever’s price growth has improved for seven consecutive quarters, reaching 12.5 percent in the most recent three-month reporting period.

“Further evidence of pricing power and low elasticity is the positive here, with anticipated close to 20 percent raw material inflation in [the first half of] 2023 the offsetting caution, in the context of a plus-50 [basis points] fiscal year 2023 operating margin consensus,” wrote Martin Deboo, an equity analyst at Jeffries, in a note.

The third-quarter results, reported before the opening of the London Stock Exchange on Thursday, marked several firsts for Unilever.

It was the first time the company’s numbers reflected business from its new corporate structure, put in effect on July 1. That divided the organization into five branches in what’s meant to be simpler, more category-focused activity.

It was also the first time Unilever chief executive officer Alan Jope addressed the financial community following his announcement in late September that he plans to retire at the end of 2023.

At the beginning of the call with analysts on Thursday morning, Jope acknowledged his decision, but said there would be time to discuss that in more detail on other occasions.

“For now, it’s business as usual and my team and I are fully focused at the task at hand running this great company,” he said.

Unilever’s price hikes, due to rising inflation, were a key talking point during the conversation.

“Taking price increases is not easy. We are very mindful of the pressure that this puts on consumers,” the CEO said. “The inflation that we’re seeing from global materials markets, higher energy costs, the impact of climate change on agriculture and rising wages means that we must take prices up simply to protect our ability to invest in our brands. This has been an explicit strategy implemented by Unilever early and with precision.”

In the quarter, gains in each of Unilever’s five business units contributed to the company’s overall sales rise, while volumes declined only slightly, by 1.6 percent.

“The billion-euro-plus brands led the way,” Jope said. Together, those represent around 50 percent of Unilever’s sales and their revenues grew 14 percent.

Unilever’s reorganization is bearing fruit, according to the executive.

“[It] is already increasing the clock speed of the company and sharpening key decisions and choices across the business,” said Jope, noting it remains early days and there is still much to do. “But we’re seeing strong signs of the benefits.”

In the third quarter, Unilever’s Beauty and Wellbeing division’s underlying sales gained 6.7 percent, bolstered by price increases, but with a slight decline in volume, mainly in skin care and hair care. Prestige Beauty and Health and Wellbeing delivered double-digit growth, with Liquid I.V., Paula’s Choice and Living Proof having strong results. Sunsilk and Clear contributed to gains among hair care brands, and Pond’s and Vaseline were notable in skin care.

The Personal Care division’s sales rose 8.9 percent organically, with Jope calling deodorants “a standout, with Rexona, Dove and Axe all growing double-digit.”

Unilever’s Home Care, Nutrition and Ice Cream branches each notched up double-digit gains.

Group sales in the first nine months of 2022 reached 45.6 billion euros, an 8.9 percent increase in organic terms and a 16.1 percent rise on a reported basis.

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In the period, overall sales in Unilever’s priority geographic markets were strong. In the U.S., for instance, underlying sales growth was 8.6 percent.

“Whilst the supply situation is now improving, we continue to face some systemic issues with labor availability, and that’s going to continue into the fourth quarter,” Jope said.

Graeme Pitkethly, Unilever’s chief financial officer, said the U.S. consumer remains relatively robust.

“But inflation is now his or her number-one thought, and concerns about recession are growing,” he said, adding that market grew in the third quarter in both brick-and-mortar and e-commerce, but with smaller basket sizes.

Unilever’s sales in India grew 16.1 percent, while China reported positive underlying sales growth, despite the localized coronavirus-related lockdowns. Sales in emerging markets were up 13.3 percent.

For the fourth quarter of 2022, Unilever expects there to be a greater level of volume decline compared to the first nine months of 2022.

The company further anticipates net material inflation, or NMI, this year to remain unchanged at about 4.5 billion euros in the second half.

“Although some commodities have softened from their peaks, we expect cost pressure to carry forward into 2023, driven by currency devaluation, higher raw material costs versus beneficial covers in the first half of 2022, and higher supplier processing costs from energy and labor inflation,” Unilever said in a statement.

Therefore, the company’s estimate for NMI in the first half of 2023 versus first-half 2022 is about 2 billion euros, “with a range of possible outcomes.”

Due to Unilever’s strong third-quarter sales, the company raised its guidance for full-year 2022 and now expects underlying sales growth to be above 8 percent. Previously, the group had anticipated it would be in the 4.5 percent to 6.5 percent range.

Unilever also on Thursday maintained margin guidance of 16 percent for the full year.

“Growth is and will remain our overriding priority,” Jope said. “The results demonstrate the resilience of consumer goods as a sector, the strength of our brands and our single-minded focus on operational execution during this period of high inflation.”