Rising pound hits Unilever

On the face of it, Unilever's (ULVR) first-quarter results were slightly soft. But strip out the impact of the strengthening pound and the consumer-goods giant's performance was, in fact, reasonably robust. The maker of Dove soap and Knorr bouillon once again achieved market-beating growth.

Reported sales fell 6 per cent to €11.4bn, but that reflected a currency hit of nearly 9 per cent. Adjust for this and the effect of disposals and acquisitions and underlying sales growth was a solid 3.6 per cent. This was driven by 6.6 per cent like-for-like sales growth in emerging markets to €6.44bn (56 per cent of group sales), offsetting a marginal decline in developed economies to €4.96bn.

The home and personal-care categories both performed well, with sales up 7.4 per cent and 4.5 per cent respectively, driven by a combination of volume and price increases. The refreshment division also had a surprisingly positive start to the year, with sales boosted by higher ice-cream volumes in Brazil, Australia and Europe.

Regionally, China, Turkey and Indonesia delivered strong trading, while European growth was flat. Revenue in North America declined, but that was largely down to the timing of Easter. Unilever bought a majority stake in a Chinese water-purification business, Qinyuan, marking the company's biggest acquisition in the country for more than a decade and doubling the size of its water-purification operations. Management also announced a strategic review of the North American pasta-sauces business and the SlimFast brand, so further disposals could be on the cards.

Panmure Gordon says…

Hold. Unilever’s first-quarter sales figures are slightly ahead of consensus estimates of 3.3 per cent growth. We think the statement reads reasonably positively, with market-share gains in margarine in Europe and North America a notable improvement after several years of underperformance. The European growth of 0.1 per cent was also better than we had expected. Our full-year forecasts have not altered materially, however, as the ongoing currency drag will prevent Unilever from reporting any material profit growth this year; we expect EPS of €1.56 (£1.28). The shares are also trading broadly in line with key global peers.

Berenberg Bank says…

Hold. It was positive to see spreads gaining share, but the modest start in personal care could see the usual concerns over competition with Procter & Gamble emerge. The emerging-market slowdown was disappointing, considering the improvements in the previous quarter, but the European performance was encouraging. We also think Unilever’s execution is improving, demonstrated by gross-margin and market-share gains. Currency headwinds this year will wipe 5 to 6 per cent off the top line, and a bit more off EPS, leaving the reported figure flat after disposals. The stock is trading on 18 times our earnings forecast for 2015, so we are still holding off - for now.