Revenue Radar: Unilever H1 2024 results blend sweet success with melting ice cream

Unilever, the global consumer goods giant, has reported impressive financial results for the first half of 2024, showcasing resilience in a challenging economic environment. However, the company faces ongoing tensions with stakeholders in its Ice Cream division and challenges in some key markets.

Unilever reported its H1 2024 earnings on July 25, 2024.

Financial Performance Overview

• Revenue: €31.1 billion, up 2.3% year-over-year
• Underlying Sales Growth (USG): 4.1%, with 2.6% from volume and 1.6% from price
• Underlying Operating Profit: €6.1 billion, up 17.1% year-over-year
• Underlying Operating Margin: 19.6%, up 250 basis points year-over-year
• Underlying Earnings Per Share: €1.62, up 16.3% year-over-year
• Free Cash Flow: €2.2 billion, down €0.3 billion from H1 2023

CEO Hein Schumacher emphasized the company’s focus on delivering high-quality sales growth and expanding gross margins: “We are focused on driving high-quality sales growth and gross margin expansion, led by our Power Brands. Over the first half, we made progress on those ambitions.”

Business performance and growth

Unilever’s performance across its five business groups showed varied results:

Beauty & Wellbeing: €6.5 billion revenue, up 7.1% USG with 5.5% volume growth Personal Care: €7.0 billion revenue, up 5.6% USG with 2.9% volume growth Home Care: €6.3 billion revenue, up 3.3% USG with 4.6% volume growth Nutrition: €6.7 billion revenue, up 3.2% USG with flat volume Ice Cream: €4.6 billion revenue, up 0.6% USG with -1.0% volume growth

The company reported strong performance from its Power Brands, which represent approximately 75% of turnover. These brands led growth with 5.7% USG and volumes up 4.0%.

CFO Fernando Fernandez highlighted the strength of the company’s core brands: “Our Power Brands operate outside 400-500 basis points higher than the rest of the portfolio.”

Geographic Performance

Emerging Markets: 5.1% USG, with 3.8% from volume and 1.3% from price Developed Markets: 2.8% USG, with 0.8% from volume and 2.0% from price North America: 3.4% USG, with 2.0% from volume and 1.4% from price Latin America: 8.8% USG, with 7.0% from volume and 1.6% from price Europe: 3.5% USG, with 0.5% from volume and 2.9% from price

Unilever faced challenges in some key markets, particularly in China and Indonesia. CEO Schumacher noted, “Fixing Indonesia will require significant portfolio initiatives and the reset of our route-to-market strategy. It will take time and we do not expect to see significant benefit of operational changes in 2024.”

Strategic initiatives and product development

Unilever continues to implement its Growth Action Plan (GAP) across all ten action areas, focusing on three broad priorities:

1. Delivering faster, higher quality growth
2. Creating a more streamlined and productive business
3. Embedding a sharper performance culture within Unilever

Key initiatives and developments include:

• Increased focus on Power Brands: 85% of the incremental brand and marketing investment was allocated to these top 30 brands.
• “Unmissable Brand Superiority”: Unilever is implementing a framework focusing on six key areas: product, packaging, proposition, promotion, place, and price.
• Innovation scaling: The company aims to double the average size of its innovations overall and drive select innovation projects to over €100 million in sales by 2025.
• Productivity Programme: Unilever launched a comprehensive productivity drive aimed at simplifying the business and fostering quicker decision-making.
• Ice Cream Separation: The company is progressing with its plan to separate the Ice Cream business, expected to be completed by the end of 2025.
• Sustainability Leadership: Unilever continues to focus on four priority areas: climate, plastics, nature, and livelihoods.

CEO Schumacher commented on the innovation strategy: “We have two goals. First, we want to make sure that the average size of our innovations in totality would double this year. The second thing is that we’re very keen that we will grow a select set of roughly 10 to 12 platforms to more than 100 million euros.”

However, Unilever faces challenges in its Ice Cream business, particularly with recent changes to its subscription model leading to industry discord. The inclusion of audiobooks in the Premium tier has led to pushback from major music companies and organizations, who argue it unfairly reduces the royalty pool for music creators.

Future Outlook and Guidance

Despite facing challenges in some markets and segments, Unilever maintains a positive outlook for the remainder of 2024. The company provided the following guidance:

• Full-year 2024 underlying sales growth is expected to be within the 3-5% range, with the majority coming from volume.
• Underlying operating margin for the full year is expected to be at least 18%, with increasing investment behind brands.
• The company anticipates that year-on-year margin progression in the second half will be smaller than in the first half.

CFO Fernando Fernandez cautioned about potential headwinds: “We see some increase in competitive marketing spending, particularly in markets like US and India. We see a return of moderating inflation to some key commodities of some of our materials. We see some deterioration in the last few weeks on some emerging market currencies.”

Regarding the productivity programme, Fernandez noted: “We have kicked off the consultation process in Europe on July 10th. We are in consultation with the European Works Council on that and we are making good progress. You will see the benefits of productivity coming more in 2025 than during this year.”

Unilever remains confident in its ability to drive long-term growth and profitability. The company’s success in expanding its Premium subscriber base and its ability to implement price increases in key markets without significant churn demonstrate the strength of its core business model.

CEO Schumacher emphasized the ongoing focus on the Growth Action Plan: “There is a lot to do, but we can point to progress over the first half of this year. The Growth Action Plan is now firmly established across the business. The benefits are building steadily, not least in the performance of our Power Brands and the expansion of Gross Margin.”

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