Unilever sales beat estimates as Latin America, China gain

London: Unilever, the maker of Magnum ice cream and Hellmann’s mayonnaise, reported second-quarter sales growth that beat estimates on better-than-expected gains in Latin America and a rebound in China.

Underlying revenue increased 2.9%, London and Rotterdam based Unilever said on Thursday, compared with the 2.5% median estimate of 20 analysts surveyed by Bloomberg. Growth accelerated slightly from the first quarter, which was boosted by an earlier Easter holiday. The shares rose as much as 2.9%.

Unilever “has come in modestly ahead of expectations on both second-quarter like-for-likes and first-half margins,” Jeff Stent, an analyst at Exane BNP Paribas, said in a note. “Latin America has meaningfully picked up due to volume improvement.”

The beat in Latin America shows that Unilever can still rely on its broad emerging-market presence to offset sluggish conditions in established regions. Sales in developing markets picked up in the period, rising 6.5%, and China returned to growth thanks to e-commerce sales that should get a further boost through an enhanced partnership with Alibaba Group Holding Ltd. Unilever gets about 59% of revenue from emerging markets.

Brazil Recedes

Sales rose 13% in Latin America despite Brazil suffering the worst recession since 1990, Chief Executive Officer Paul Polman told analysts on a conference call. Gains were largely driven by price increases across all product categories. New items, including Omo laundry treatments and Dove soaps and shampoos for babies, fueled a 3.3% volume increase, Chief Financial Officer Jean-Marc Huet said in an interview. Brazil accounts for almost 10% of total sales.

Unilever rose 1.7% to 41.45 euros at 10:52 a.m. in Amsterdam.

Sales in China rebounded to a single-digit increase, a vast improvement over last year, when revenue declined 20% in the back half of the year.

Elsewhere, the story was bleaker, as revenue declined 0.9% in Europe due to price deflation and “weak momentum” in Nordic countries.

North American sales fell 2.2% as discounting remained intense in categories like haircare, the maker of Nexxus shampoo said. The tea business, including Lipton, continues to disappoint, Polman said.

Weak Demand

“Consumer demand remains weak and in the markets in which we operate volumes are flat,” Polman said in a statement. “In Europe and North America growth is negligible.”

Huet said underlying sales -- which exclude acquisitions, divestments, and currency fluctuations -- should continue to accelerate in the second half of the year. Favorable currency fluctuations will lift full-year reported revenue by as much as 8%.

“Currencies, for once, are helping us rather than holding us back,” Polman said.

So-called core operating profit margins should widen in the back half of the year, albeit by not as much as the 0.5% point gain in the first six months, Huet said. Earnings rose 16 percent to 3.9 billion euros on that basis.

“Unilever was well above expectations on first-half operating margins, despite a nice increase in brand and marketing investment,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note.

Improving Volume

Units sold in the period rose 1.3%, supporting the company’s forecast that sales volumes would improve over the course of the year.

Polman has responded to the most difficult stretch of his seven-year tenure by acquiring premium skincare brands like Murad and Dermalogica to form a new global business unit targeting consumers willing to spend more. The unit, which also includes Unilever brands like Regenerate oral care, now has sales of about 400 million euros ($439 million). The CEO said he would continue to look for more deals, and “in terms of big or small, it doesn’t matter.”

Revenue in the first six months of the year rose 12% to 27 billion euros, meeting estimates.

Huet, who will leave the company at the end of September, also said that he’s not considering taking a CFO role at any other company.

“Today is my 50th quarter as a CFO, and it’s time to do something different,” he said. On his last day at Unilever, “I will have an alcohol-free beer and think about the future that lies ahead.” Bloomberg