ii view: Emerging markets, cleaning products shine at Unilever

Sales prove in line, but growth in South East Asia is tempered by slowdowns for both India and China.

Third-quarter trading update

• Underlying sales growth (USG) +2.9%
• Volume up 1.4% and price up 1.5%
• Group turnover up 5.8% to €13.3 billion
• Quarterly dividend up 5.4% to 35.76p per share

Guidance: 

For the full year, continue to expect underlying sales growth to be in the lower half of our multi-year 3-5% range, an improvement in underlying operating margin that keeps us on track for the 2020 target and another year of strong free cash flow.

Chief executive Alan Jope said:

"We have maintained momentum in the quarter, with a good balance between volume and price. Emerging markets and Home Care have been the key growth drivers. We will step-up competitive top line performance through innovation and portfolio evolution to serve the faster growing geographies and channels.

"We are taking action to remain relevant to the consumer of the future, such as setting stretching goals on plastic use which we recently announced."

ii round-up:

The consumer goods giant Unilever (LSE:ULVR reported progress in line with analyst expectations in this third-quarter trading update. 

A 2.9% increase in underlying sales growth, led by a 5.4% increase for its home care division, virtually matched the 3.0% analyst consensus forecast. 

The share price rose just over 1% in early UK stock market trading. 

Hand dishwash and surface cleaning products such as its Sunlight and Cif brands proved key drivers in Home Care, with growth in Brazil and China standout performers. 

New patented anti-perspirant technology helped deodorant sales to deliver a 2.8% overall increase for its Beauty & Personal Care, while tough summer weather comparatives dragged on ice cream sales for its Food and Refreshments division, bringing overall underlying sales growth to 1.7%. 

Geographically, South East Asian markets continued to grow well, while growth in India softened further and China slowed a little. In Latin America the economic environment remained tough, while growth in Europe and North America stayed low. 

Sales guidance for the full year was left unchanged. 

ii view:

Recent years have not been all plain sailing for Unilever. Wage-squeezed consumers have often been turning to cheaper non-branded goods and discount retailers like Aldi only stock non-branded goods. 

For investors, the company is considered to be defensive in nature. The type of products it sells are regularly on the shopping lists of consumers globally. Its brands have also increasingly been marketed and sold in the emerging markets, although slowing growth in both India and China has been flagged. 

A prospective dividend yield of around 3% is not unattractive in the current ultra-low interest rate environment either, although a forward price/earnings (PE) ratio of around 20, which is broadly in line with both the 3 and 10-year averages, generates little excitement. 

Positives: 

• Provides diversity in both product type and geographical location
• A focus on high-growth emerging markets
• Defensive qualities in uncertain times

Negatives:

• Sales in both India and China have slowed
• It has on occasion found itself being investigated by competition authorities
• Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

Strong hold