Unilever cites ‘resilience and agility’ as it brings back sales targets

Consumer goods giant Unilever (ULVR) was buoyed again in the fourth quarter of last year by strong growth in soap/hygiene and at-home food products as the pandemic kept people indoors.

Sales growth for the fourth quarter of 2020 stood at 3.5 per cent. This helped full-year underlying sales to rise 1.9 per cent to €50.7bn (£44.5bn), in line with analysts’ expectations even as coronavirus restrictions knocked out-of-home ice cream sales and spending on personal grooming goods.

On the back of these numbers, the group – which sells Hellmann’s mayonnaise and Domestos bleach among other household names – said it would target underlying sales growth of 3-5 per cent as part of a “multi-year financial framework”. Unilever pulled its guidance last spring as the coronavirus crisis took hold, but chief executive Alan Jope cited the group’s “resilience and agility” through the crisis - and he has a point. The group responded rapidly to changing consumer patterns and logistical hurdles as the pandemic took hold. 

International trading patterns mimicked the opening and closing of different markets as coronavirus infection levels ebbed and flowed. China and India returned to growth during 2020 after tough lockdown measures in the early stages of the reporting period.

At the same time, reflecting widespread ‘stay at home’ instructions, Unilever’s e-commerce sales soared almost two-thirds – coming to constitute nearly a tenth of total revenues.

That said, further down the income statement, underlying operating profits landed just shy of market estimates at €9.4bn – down 5.8 per cent and lower than brokers’ average projection of €9.68bn. Unilever attributed that decline to negative currency movements, extra costs in its supply chain and an adverse sales mix caused by Covid-19.

The group also lifted its spending on brands in the second half – taking full-year brand and marketing investment up by €160m at constant currencies.

Still, in a year that saw Unilever unify its Anglo-Dutch legal structure under a UK-based single parent company, the group maintained its pay-outs to investors and lifted the dividend by 4 per cent in the fourth quarter to €0.4268 a share.

“Resilience is what investors expect from defensive leaders like cupboard-filler Unilever”, said Dan Lane, senior analyst at investment platform Freetrade, adding that “after a year like 2020 it looks like the company has broadly held up its side of the bargain”.

Notwithstanding “battle scars” on the balance sheet, “maintaining its dividend and upping it in the fourth quarter is a sign that Unilever knows how important that income is to yield-hungry investors flocking to the quality compounders since 2008”, Mr Lane commented. Buy.

Last IC view: Buy, 4,426p, 10 Sep 2020