1Q17 Trading Update

Anglo-Dutch firm Unilever reports sales figures each quarter, with profit updates only at the half-year and full-year. Despite warning of a tough start to FY17, the FMCG giant posted strong results this quarter. In 1Q17, Unilever posted sales of €13,319 million, ahead of the consensus estimate of €13,239 million, and up by 6.1% year over year, as reported. On an underlying basis, which strips out currency effects and the effects of acquisitions and disposals, Unilever’s quarterly sales grew by 2.9%, ahead of the consensus estimate of 1.2%. Unilever announced its intention to sell or demerge its spreads business, on April 6, 2017. Excluding spreads, Unilever’s turnover for the quarter was €12.6 billion, implying underlying sales growth of 3.4%.

Performance by Segment

Home and Personal Care, Unilever’s largest segment, which forms nearly 59% of 1Q17 sales at €7,851 million, grew by 8.4% as reported and by 3.4% on an underlying basis.

• The Home Care subsegment saw underlying sales grow by 4.1% during the quarter, helped by market development and innovations in products that addressed emerging needs, such as the growing trend toward natural products.
• In Personal Care, underlying sales increased by 3.1%, driven by a strong performance in oral care, deodorants and hair products tailored for Muslim consumers and millennials.

The Foods and Refreshments segment, which forms nearly 41% of 1Q17 sales at €5,468 million, rose by 3.1% as reported and by 2.2% on an underlying basis.

• Underlying sales growth was flat in the Foods subsegment, which Unilever blamed on the late Easter this year. Excluding spreads, which contracted by 5.1% lower demand in developed countries, underlying sales grew by 1.7%. Savory performed well, led by growth in emerging markets.
• In Refreshments, underlying sales improved by 5.4%, boosted by innovations in Unilever’s premium ice cream brands Magnum and Ben & Jerry’s.

Performance by Geography

• Asia/AMET/RUB (Asia, Africa, Middle East, Turkey, Russia, Ukraine and Belarus): Underlying sales soared by 6.9% to €5,921 million in the countries that contribute to 45% of Unilever’s turnover. Growth in Africa and Russia was driven by price impacted by currency devaluations. Sales in India recovered from the uncertainty surrounding the removal of high-value banknotes in November 2016, while sales in China were only “modestly higher,” as all channels except online posted declines.
• The Americas: Sales improved by 1.2%, excluding currency effects and acquisitions and disposals. While sales grew across most of Latin America, Brazil—Unilever’s largest market in the region—saw sales fall as a result of the volatile economic conditions. Underlying sales in North America declined due to slowing market growth.
• Europe: Underlying sales slowed by 2.0%, due to continued weakness in consumer demand and a challenging retail atmosphere. Unilever said that the shrinking margarine market weighed on overall growth, particularly in Germany and the UK.

Outlook

For FY17, Unilever forecasts underlying sales will grow in the range of 3%–5%, the operating margin will improve by 80 basis points and expects strong cash flow. The FMCG leader has raised the dividend by 12% to indicate confidence in the outlook for the year, it said. For FY17, analysts expect the following:

• Revenues to increase by 5.6% to €55.7 billion.
• EBIT to grow by 10.6% to €8.9 billion.
• Diluted EPS to rise by 13.3% to €2.13.