Unilever sales edge up as it focuses on key brands

Unilever’s (ULVR) chief executive Hein Schumacher, who took the reins of the embattled group last July, provided a caveat within an otherwise encouraging set of figures for 2023, cautioning that “competitiveness remains disappointing and overall performance needs to improve”. Reported GAAP measures certainly bear this out, but there are signs that the group is pursuing a more pragmatic business strategy.

During the dark days of the pandemic, Unilever – in common with high-profile industry peers – decided to pare back the number of brands it offered to mitigate supply chain problems. An intensified focus on the group’s core brands is now the default position. And it’s easy to understand why. The group generates around 70 per cent of turnover from just 30 brands, the likes of Marmite and Domestos. The move reflects an established industry trend in response to concerns that some labelled consumer brands may have lost their lustre during the inflationary spiral as shoppers cast around for cheaper generic alternatives.

It's a little too early to determine the extent to which the narrowed brand focus has improved financial performance, but underlying sales grew 7 per cent to €59.6bn and the gross margin increased by 200 basis points, accelerating through the fourth quarter. The underlying operating margin was 60 basis points to the good at 16.7 per cent. These improvements need to be viewed in the context of a challenging trading backdrop and the imperative to limit the impact of increased input costs.

There were positive trading outcomes across the board. The beauty & wellbeing segment recorded an 8.3 per cent increase in underlying sales, while personal care sales rose 8.9 per cent. There were also positive outcomes for both the nutrition and home care segments, although the performance of the ice cream business was hampered by input cost inflation and dwindling volumes.

The forward rating of 17 times consensus earnings compares favourably with that of US peers such as Procter & Gamble (US:PG) and Colgate-Palmolive (US:CL).There is also an implied forward dividend yield of 3.8 per cent to take on board and management has initiated a new €1.5bn share buyback. However, the impact of the self-help measures is not yet fully apparent, so the group remains a 95-year-old work in progress. Hold.

Last IC view: Buy, 3,887p, 26 Oct 2023