A leading retail analyst has suggested that while Unilever should be pleased with its first-quarter performance, in which the FMCG giant posted underlying sales growth of 3.1%, new chief executive Alan Jope needs to focus on ensuring the firm is fit for the future.
“Alan Jope has now been in the hot seat since January and he’s delivered a satisfactory first quarter, although nothing spectacular," commented Russ Mould, investment director at AJ Bell.
“Now comes the hard part – he needs to find a way to stop the company’s sales growth from slowing down and adapt Unilever for the new era of retail where online shopping and the rise of discounters are driving down prices.
“Jope needs to decide the shape of Unilever for the next phase of its life – whether that means slimming down the business further to concentrate on the strongest parts or making acquisitions to further increase scale in certain product lines.”
Emerging Markets
Emerging markets were a key driver of Unilever's sales in the period, with like-for-like growth of 5% in the first quarter, compared to 0.3% for developed markets.
The group said that the disposal of its spreads business last year had an impact on overall group turnover for the quarter, which was down 1.6% to €12.4 billion.
“Importantly growth was balanced between volume and price rather than being reliant on only one of them to drive up earnings," said Mould.
“However, guidance for underlying sales growth to be in the lower half of its multi-year 3% to 5% range just goes to show that you cannot automatically expect Unilever’s sales to be strong all the time despite its size and market positioning."
Risk vs Reward
Elsewhere, analysts Liberum said that while Unilever's performance beat consensus expectations, it sad that the reward/risk outlook is 'balanced' at the group.
"While more aggressive EPS growth certainly underpins the shares, failure to deliver on lifted expectations could lead to a pull-back," it said.
"In addition, the company’s bold margin targets could be unsustainable in the long run. Over 2018- 2020E, we expect Unilever to deliver ~4% organic sales CAGR and a 20% underlying EBIT margin, in-line with management expectations."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
