Unilever ice cream sales hindered by rainy spring

25 Jul 2019 --- Unilever has attributed steady half-year growth to its emerging market businesses, which grew by 6.2 percent, while developed markets weakened, according to its mid-year financials. Results across the brand’s global markets were reportedly mixed, with an underlying sales growth of 3.3 percent. Market growth in Europe and North America was notably held back by the impact of springtime rains on ice cream sales, following two years of warm summers. The company continued to see good momentum particularly in the emerging markets of China, India and South East Asia. Argentina remains hyperinflationary and high levels of pricing continue to weigh on consumer demand.

Turnover in this period decreased 0.9 percent, driven by the €6.8 billion sale of the brand’s Spreads business to private-equity firm KKR, partially offset by a currency benefit of 1.1 percent. Underlying operating margin improved by 50 basis points (bps). Gross margin was up 30bps, helped by efficiencies from Unilever’s 5S program of supply chain management improvement. Overheads were noted to have an adverse impact on underlying operating margin of 10bps. 

Foods & Refreshments
Underlying sales in Unilever’s Food & Refreshment division grew 1.3 percent. In tea, sales declined with volumes impacted by weak consumer demand in developed markets. This was partially offset by black tea in emerging markets and its fruit, herbal and green tea ranges, which include the Pukka Herbs premium herbal tea brand. Sales in dressings were flat with volumes slightly down as competitive intensity remained high. 

Despite poorer weather in the second quarter compared to the previous two years, ice cream grew slightly over the half. Unilever’s Ben & Jerry’s brand last month announced plans of launching a line of CBD-infused ice cream, if met with regulatory approval. The company saw good ice cream performance in Asia, with a boost from innovations such as Magnum White Chocolate and Cookies.

Savoury performance was helped by the launch of new snack pot variants meeting the trend of convenient snacking on-the-go. The introduction of Hellmann’s Burger and Spicy Dipping sauces continued to broaden the brand beyond core mayonnaise, and Sir Kensington’s condiments performed well, the company notes.

Underlying operating margin in Foods & Refreshment decreased by 40bps, as a result of an adverse impact on overheads related to the disposal of Unilever’s Spreads business.

Focus on digital transformation
Unilever states that its change programs, such as the 5s program, have helped to address stranded costs following the disposal of its Spreads business. The company continues to invest in the ongoing digital transformation of the  business. Brand and marketing investment decreased compared to the previous year, as Unilever continued to deliver zero-based budgeting savings ahead of target, with an increased focus on digital spend. More than two thirds of savings have been reinvested, largely behind innovations and new brand launches.

“For the full year, we continue to expect underlying sales growth to be in the lower half of our multi-year 3-5 percent range, an improvement in underlying operating margin that keeps us on track for the 2020 target and another year of strong free cash flow,” notes Alan Jope, CEO of Unilever. “Our sustainable business model and portfolio of purpose-led brands are key to delivering superior long-term financial performance.”

Streamlined assessments of sustainable value chains are in focus this year. Last month, Unilever and chocolatier Barry Callebaut became the first companies to utilize a harmonized approach to this end. By piloting the Field to Market/Sustainable Agriculture Initiative’s (SAI) Equivalency Module with US farmers, the brands look to benefit from an evaluation that provides elevated efficiency in measuring and assessing the sustainability performance of their supply chains.

By Benjamin Ferrer

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