Unilever Plc Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Growth Action Plan (GAP): Implemented across 10 action areas under three priorities: faster growth, streamlined productivity, and performance culture. Focus on Power Brands with 180 basis points increase in brand and marketing investment, 85% allocated to Power Brands.
• Gross Margin: Expanded 420 basis points to 45.7% due to lower material costs and tight cost control. Supported by net cost productivity and deflation in commodity components.
• Sustainability: Scope 3 emissions targets validated by SBTI; regenerative agriculture projects aim for 335,000 hectares; Circle Alliance launched for plastics; 20% procurement spend with Living Wage Pledge suppliers.
• Operational Progress: Made progress on separating Ice Cream and productivity initiatives. Ice Cream operations improved in service and pricing but faced challenges in China and Europe.

Segment Performance

• Beauty & Wellbeing: Underlying sales growth of 7.1% with 5.5% volume growth. Power Brands like Sunsilk, Dove, Vaseline, and Pond’s drove strong performance, with volume above 5% for three consecutive quarters.
• Personal Care: Grew 5.6% with a balance of volume and price growth. Dove had double-digit growth, deodorants and skin cleansings performed well despite market challenges in Indonesia and India.
• Home Care: Grew 3.3% with volume up 4.6%. Impacted by commodities deflation in emerging markets, but premium innovations like Persil Wonder Wash showed promise.
• Nutrition: Returned to positive volume growth in Q2, achieving 3.2% underlying sales growth. Driven by Power Brands Knorr and Hellmann's, which combined grew 5.2%.
• Ice Cream: Grew 0.6% with price growth 1.6% but negative volume. Affected by tough market conditions in China and poor weather in Europe.

Guidance

• Underlying Sales Growth: Expected within 3%-5% range for 2024, volume-led.
• Operating Margin: Underlying operating margin expected at least 18% for full year, with H2 margin progression smaller due to stronger comparators and moderate commodity inflation.
• Capital Expenditure: Expected to remain around 3% of turnover.

Risks

• Market Challenges: Tough market conditions in China impacting Ice Cream performance.
• Weather Impact: Poor weather in Europe weighed on Ice Cream summer season.
• Commodity Inflation: Moderating margin progression in H2 due to return of commodity inflation.
• Competition: Private label market share in Europe and competitive pressure in some regions.

Question and Answer

• Q: Outlook for growth and gross margin A: Volume-led full year guidance maintained; gross margin expansion driven by multiple factors but cautious on H2 due to stronger comparators and commodity inflation.
• Q: U.S. beauty slowdown and marketing investment A: U.S. beauty slowdown not structural; marketing investment to drive market share improvement, with green shoots seen in recent MAT measurements.
• Q: Emerging markets and Carlsberg acquisition A: Confident in emerging markets fundamentals; Carlsberg acquisition not a concern if strategically fitting, with focus on scalable opportunities.
• Q: Six Ps and supply chain A: Progress on unmissable brand superiority framework; supply chain investing in productivity with CapEx allocated to margin expansion.
• Q: Nutrition and Ice Cream actions A: Nutrition focused on scaling Power Brands; Ice Cream implementing improvements in China (portfolio premiumization) and Europe (operational grip tightening).
• Q: Pricing and consumer behavior A: Pricing to normalize; consumer behavior stable with focus on value, though increased promotional activity in Europe observed.
• Q: Product superiority and volumes A: Unmissable brand superiority framework includes multiple consumer preference drivers; mix component in volume growth around 25% in Q2.
• Q: Health & wellness and China A: Health & wellness brands growing, with Liquid IV expanding internationally; China market muted but business holding with focus on mainstream and B2B nutrition.
• Q: Margin and cost savings A: Margin focus on investment behind brands; cost savings plan in progress, with 5%-10% implemented in H1.
• Q: Premiumization and B2B A: Premiumization ongoing in personal care; B2B nutrition business stable with no major slowdown observed.
• Q: Europe consumer and Power Brands margin A: Europe consumer responsive to innovation; Power Brands gross margin progression similar to portfolio, operating at higher levels.