Unilever Plc Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Volume-Led Growth: Delivered another quarter of volume-led growth with underlying sales in Q3 growing 4.5% and volumes up 3.6%, marking the fourth consecutive quarter of positive and improved volume growth. Power Brands were up 5.4%, including 4.3% volume growth.
• Operational Improvements: Part of the Growth Action Plan (GAP) led to stronger and more consistent delivery. Scaling fewer but bigger innovations across markets had a positive impact.
• Portfolio Actions: Exited water purification business in China by selling stake in Truliva, completed exit from Russia, made significant intervention in Indonesia to address portfolio and route-to-market challenges, and reset go-to-market approach in China.
• Projects Progress: Ice cream separation team building was ongoing with key appointments, and productivity program implementation had begun in countries where consultations with works councils were concluded.

Segment Performance

• Beauty & Wellbeing: Underlying sales growth of 6.7% with 5.7% volume growth. Fourth consecutive quarter with volume growth above 5%. Power Brands drove high single-digit growth. Hair Care was low single digit, Dove had volume-led growth, TRESemme was strong, Clear was flat in China. Core Skin Care had mid-single-digit growth.
• Personal Care: Grew 4.4%, driven by volume up 3.1% and price up 1.3%. Dove achieved double-digit growth, deodorants led, Latin America performed strongly, Europe and North America well, Skin Cleansing was low single digit.
• Home Care: Grew 1.9%, premium innovations drove 3.3% volume growth, offset by 1.4% price decline. Fabric Cleaning was low single digit, Persil Wonder Wash and Surf Excel Matic performed well.
• Home & Hygiene: Mid-single-digit volume-led growth. Cif and Domestos were strong, Fabric Enhancers were double-digit led by Comfort.
• Nutrition: Underlying sales grew 1.5% driven by price, volume growth was 0.4%. Scratch Cooking Aids were low single digits, Latin America was strong, U.S. had mid-single-digit, Dressings were flat, Unilever Food Solutions were low single digits.
• Ice Cream: Grew 9.8% with 6.7% from volume and 2.9% from price. Magnum was double-digit, Ben & Jerry's and Cornetto were high single-digit.

Guidance

• On track to meet 2024 outlook. Expect underlying sales growth for 2024 to be within the multiyear range of 3% to 5% with the majority of growth from volume. Full-year underlying operating margin is expected to be at least 18% with increasing investment behind brands. Expect year-on-year margin progression in the second half but smaller than the first half due to stronger comparators and moderate commodity inflation returning.

Risks

• Indonesia: Saw an 18% decline in Q3 with long-standing portfolio and route-to-market issues. Significant intervention needed with benefits expected in the second half of 2025.
• Currency: Adverse impact from currency fluctuations, particularly in emerging markets, with a negative impact in the quarter due to depreciating emerging market currencies against the euro.
• Commodity Inflation: Moderate cost inflation returning in key commodities like cocoa, aluminum, and palm, affecting pricing outlook.

Question and Answer

Q: Warren Ackerman asks about why investors should believe Indonesia's turnaround will be different this time and what to expect from Indonesia between now and second half of 2024.

A: Hein and Fernando discuss Indonesia's significant intervention including resetting route to market, removing price instability, and resetting stock levels, with shares stabilizing and expecting improvement in 6 months or so.

Q: Warren Ackerman asks about restructuring in Europe and reassurance on track.

A: Hein states consultation with European Works Council finalized, design of new organization completed and communicated, on track to make significant progress by end of year with no notable impact on performance so far.

Q: Celine Pannuti asks about pricing outlook and U.S. volume mix.

A: Hein says subdued pricing expected in next couple of quarters with return to moderate levels reflecting commodity inflation, and U.S. consumer resilient with solid performance in core business.

Q: Jean-Olivier Nicolai asks about LatAm trends, particularly Mexico slowdown.

A: Hein and Fernando say Mexico slowdown is more normalized after strong growth, Brazil had lower pricing in Home Care, Argentina performed strongly competitively.

Q: Thomas Sykes asks about interventions in smaller countries and growth algorithm.

A: Hein says smaller countries operate efficiently, not a drag on profitability; Fernando explains medium-term expectation of more than 2% volume growth and normalized pricing leading to high single-digit earning growth.

Q: Guillaume Delmas asks about margin outlook and ice cream separation.

A: Hein says unchanged margin outlook due to investment behind brands and resetting operations; Fernando states ice cream separation on track for end of 2025, Hindustan Lever's committee to assess separation mode by end of year.

Q: Jeffrey Stent asks about Nutrition strategy.

A: Hein says focused on restoring competitiveness in core categories, improving condiments, and growing Food Solutions business, with Indian food business having negative pricing in Q3 but determined to grow.

Q: Victoria Petrova asks about palm oil impact and FX.

A: Hein says need to drive unmissable brand superiority, Fernando says on FX, conscious of hard currency earnings growth, with current currency impact negative year-to-date but expecting full year around 1.5%.

Q: David Hayes asks about developed vs emerging markets growth and market share.

A: Hein says developed markets have momentum due to innovation and investment, emerging markets have particular impacts like Indonesia reset; Fernando says sequential improvement in competitiveness starting to materialize.

Q: Ed Lewis asks about culture change under GAP.

A: Hein says making progress with unmissable brand superiority, embedded sustainability strategy, and innovation, with systemic culture change program planned in coming months.