25 July 2024
If you are covering Nestle and/or Unilever’s financial results this morning, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Both Unilever and Nestle delivered a mixed bag of results this morning as both increased their volume of sales, but are seeing the inflation benefits around pricing beginning to wear off. As input costs have come down and inflation has returned to central bank targets, consumers are now less understanding of large increases in pricing. Therefore, both Nestle and Unilever have had to get more competitive, spend more on advertising and crucially introduce more promotions when it comes to prices. This has ultimately been the biggest driver of results today.
“Looking at Nestle, its confectionary, coffee and pets businesses are all doing well as people continue to prioritise more quality items when it comes to their spending habits. Where it is struggling is more where its products are exposed to the commodity markets, where prices have moderated considerably since the highs we saw two years ago. Nestle does continue to see good growth in emerging markets though, a trend that has been sustained over a long period of time now.
“Today’s results for Nestle are more of a reality check, with the macroeconomic situation now reflecting on its figures. It has had cut its guidance as a result, however, its qualities remain enduring – that is good exposures to the right markets, is well managed and provides a solid defensive option for investors’ portfolios.
“Unilever on the other hand remains in the midst of a restructuring and as such is a little more complicated of a picture. It too did well on volumes and miss on its sales target, but importantly the big win for them is the large increase in operating margins. Management is keen to stress that part of this one off due to lower commodity prices and previous price increases, but it has done well to sell a greater proportion of higher margin products. Again, like Nestle, emerging markets is doing a lot of the heavy lifting in terms of growth.
“The ice cream business at Unilever continues to struggle, highlighting just why management wants to sell it off. However, this may be a case of eyes being taken off the ball here and it thus may struggle to get the valuation it wants or deserves for that business. It wouldn’t be the first time Unilever has undersold a business due to its internal struggles.
“That said, Unilever has delivered positive guidance and the turnaround story is alive and well in the more important areas of the business. The conglomerate has struggled of late, but management has done a good job of righting the ship and putting it back on a path for growth. We see that path continuing despite the macroeconomic pressures, especially if it can continue to simplify and streamline the business.”
