27 October 2022
If you are covering Unilever’s Q3 results, please see comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Unilever, the consumer goods giant with brands such as Dove soap and Magnum ice cream, reported good headline sales growth today, up 10.6% over the three months ended 30 September which is about 3% better than expected. However, the long process to replace the CEO continues to hang over the business, which also faces increased pressures on volumes from the cost-of-living crisis as well as currency devaluation increasing the cost of raw materials and feeding into cost pressures next year.
“While the decline in sales volumes in Q3 was better than Q2, the business saw absolute falls in Europe and the US as people switch to cheaper products. Growth therefore is mainly driven by price increases and the simple fact is that investors do not value pricing as highly as volume growth. Management expects margin improvement in 2023/24, however the market will take some convincing. Unilever’s margins have been squeezed as the war in Ukraine has pushed up energy costs and the cost of ingredients, and Unilever has not demonstrated the ability to consistently grow both sales and margins in recent years.
“While ice cream sales remain good, it is these types of products that more people may choose to forgo next year. However, in the long-term, Unilever’s stable of brands are likely to remain in demand and therefore we do not view the valuation as expensive.”
