ii view: shares tumble after Unilever's latest update

Now at a nine-month low, we assess prospects for shares in the Anglo-Dutch consumer goods giant.

Full-year results to 31 December

• Full-year turnover down 2.4% to €50.7 billion
• Adjusted earnings per share down 2.4% to €2.48
• Net debt down 9.5% to €20.9 billion
• Fourth-quarter dividend up 4% to €0.4268 per share

Chief executive Alan Jope said:

" In a volatile and unpredictable year, we have demonstrated Unilever's resilience and agility through the Covid-19 pandemic. Early in the year, we refocused the business on competitive growth, and the delivery of profit and cash as the best way to maximise value. We have delivered a step change in operational excellence through our focus on the fundamentals of growth. As a result, we are winning market share in over 60% of our business in the last quarter, on the basis of measurable markets. 

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"We progressed our strategic agenda, building on our existing sustainability commitments with ambitious new targets and actions, most recently with our plans to help build a more equitable and inclusive society. We completed the unification of our legal structure under a single parent company and we continue to work on separating out the tea business as we evolve our portfolio.

"Today we are setting out our plans to drive long term growth through the strategic choices we are making and outlining our multi-year financial framework. While volatility and unpredictability will continue throughout 2021, we begin the year in good shape and are confident in our ability to adapt to a rapidly changing environment."

ii round-up:

Consumer goods giant Unilever (LSE:ULVR) today reported fourth-quarter underlying sales growth of 3.5% and moved to return a forward target of 3% to 5% growth, abandoned at the start of the pandemic. 

The quarterly performance fell below growth of 4.4% achieved in the third quarter, with new targeted sales growth of up to 5% shy of rival Procter & Gamble's (NYSE:PG) recent upgrade for current year sales to potentially rise by up to 6%. 

Unilever shares retreated by more than 6% in UK trading, leaving them down around 10% over the last year compared to a 2%-plus gain for P&G shares. Reckitt Benckiser (LSE:RB.) shares are down around 1% over the same time. 

Unilever is home to around 400 brands, including Dove, Sunsilk, Comfort, Knorr and Domestos. Underlying sales rose by 1.9% for the full year 2020 compared to 2.9% in 2019. Management previously began a full evaluation of its categories and brands, with a view to accelerating the pace of portfolio change. Its tea brands were previous flagged as an area to exit.

Sales are split almost equally between Beauty & Personal Care and Foods & Refreshment each at around 40%, with Home Care accounting for the balance.

Lockdowns in China and India led to market declines in the first and second quarters respectively, with both markets subsequently returning to growth during the year.

In North America and Europe, elevated demand for food consumed at home had continued to drive market growth, while consumer usage of most beauty and personal care categories remained subdued. In Latin America, markets proved broadly flat for the year, although several South East Asian markets contracted.  

ii view:

Unilever is considered to be defensive in nature. Some 2.5 billion people use its products every day. However, recent years have not been all plain sailing. Wage-squeezed consumers have often been turning to cheaper non-branded goods and competitor Proctor & Gamble has been reinvigorated – P&G shares rose by 11% over 2020 compared to a gain of less than 1% for Unilever. 

However, Unilever is working hard to restore former glories. These latest results have seen management announcing five strategic goals. These include winning with its brands as a force for good, powered by purpose and innovation, and accelerating growth in the US, India and China and leveraging its emerging markets strength. The pandemic has also distorted performance, pushing demand for eat at home consumer foods and home care products while impacting sales to the disrupted or closed hospitality sector.  

For investors generally, sales are yet to really impress, and a forward price/earnings (PE) ratio of around 20, broadly in line with both the three and 10-year averages, doesn't scream value. But Unilever has a record of recovering from setbacks. A historic and prospective dividend yield of over 3% is also not to be dismissed in an era of ultra-low interest rates. In all, while this consumer goods giant may not yet be firing on all cylinders, the colossal daily sales of its products leave it tough to ignore in a still highly uncertain world.  

Positives:

• Provides diversity in both product type and geographical location
• Defensive qualities in uncertain times

Negatives:

• Latest quarterly sales growth down on the prior quarter 
• Discount retailers often only stock their own branded labels

The average rating of stock market analysts:

Buy