Poor Spring weather impacts Unilever’s (ULVR) ice cream sales

Emerging markets counterbalanced weaker European and North American growth, but debt still increased.

Article updated: 25 July 2019 3:00pm Author: Tom Rosser

  • Growth in China and South East Asia offsets weak growth in Europe and North America.
  • Company continues to deliver cost savings through decreasing brand and marketing investment.
  • Defensive appeal of the brand behemoth means we maintain our ‘Buy’ recommendation for medium risk investors.

Despite Unilever reporting consistent growth in its H1 results, they have fallen short of what was expected. Underlying sales were up 3.3% year on year, with the performance predominately driven by emerging markets, which grew 6.2% as good momentum was seen in China and South East Asia. This helped to offset weaker growth in Europe and North America where poorer weather impacted on ice cream sales.

In Europe underlying sales actually declined 0.6% due to continued price deflation and adverse weather in the second quarter. The company decreased brand and marketing investment compared to the previous year, in order to deliver cost savings, with an increased focus on digital spend. However, this failed to keep net debt under wraps as it increased to EUR24.2 billion due to dividends paid, acquisitions and negative currency impacts.

Our View on Unilever - Buy

Unilever will continue to focus on accelerating their growth and evolving their portfolio in order to tap into fast growth channels and regions. With constant earnings per share increasing 3% and an improvement in the underlying operating margin, the company should be on track to manufacture another year of strong free cash flow. The defensive appeal of the brand behemoth means we maintain our ‘Buy’ recommendation for medium risk investors.

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Tom Rosser

Graduate Trainee

Tom is on our Graduate Trainee program as a junior Investment Research Analyst within our fund research team. He holds a BSc Economics degree and an MSc Investment Management degree, and is currently studying towards CFA (Level ll) after passing CFA (Level l) in summer 2018.