Unilever reported an impressive set of results given the extremely challenging environment as a result of the coronavirus pandemic. Underlying sales fell 0.1% in the six-month period with volume declining 0.3% and price growth of 0.2% Underlying operating profit excluding currency increased 3.8%, before a negative impact of 3.2% from currency.
Underlying earnings per share was up 6.4%, including a negative impact of 3.7% from currency. The quarterly shareholder dividend maintained at €0.4104 per share. Free cash flow increased from €1.3 billion to €2.9 billion, reflecting management’s objective to protect cash during the crisis.
Looking at the various business segments, Beauty & Personal Care reported a decline in underlying sales of 0.3%, with volume growth of 0.1% and negative pricing of 0.4%. On a positive note, skin cleansing saw mid-teens volume-led growth, as Unilever responded to high demand for hand hygiene to prevent the spread of Covid-19.
Home Care underlying sales grew by 3.2%, with 2.9% attributable to volume and 0.3% to pricing. Increased demand for household cleaning products, such as Cif delivered robust underlying sales growth.
Foods & Refreshment underlying sales declined 1.7%, with volumes down 2.5% and positive pricing of 0.8%. The division was negatively impacted by lock-downs which in most markets led to the closure of out of home channels. This, together with reduced tourism, led to a reduction in out of home ice cream sales of nearly 30%. Similarly, food service sales were down around 40% as hotels, restaurants, cafes and bars closed.
Unilever currently trades on a PE of 22x and a dividend yield of 3.3%. Although this looks on the pricey side, we are more than happy to hold this stock in portfolios given the quality of the business, with the company continually generating high returns on equity (20% +). For most companies, high returns would quickly be competed away, however, this has not been the case for Unilever which has been able to defend its position year after year. We attribute this to Unilever’s strong brands, intellectual property and vast logistical supply chain.