Q2 2024 Earnings Summary
- Unilever's Health & Wellbeing business is growing strongly, delivering double-digit growth, with brands like Nutrafol and Liquid I.V. becoming top 25 brands and contributing more than 5% of turnover, indicating a strong growth engine.
- The company is focusing on its Power Brands, increasing brand and marketing investment by 180 basis points, with 85% of the incremental investment behind these brands, leading to improved competitiveness and growth; Power Brands also operate at 400-500 basis points higher gross margin than the rest of the portfolio.
- Unilever is transforming into a structurally higher gross margin business, with gross margin expanding by 420 basis points to 45.7% in the first half, driven by volume leverage, positive mix, and productivity initiatives, enabling increased investment in brands and future profitability.
- Continued weak performance in the Ice Cream business, particularly in China, where market conditions have been tougher and Unilever faces competitive pressure. The company acknowledges that "the disappointing performance has been fundamentally driven by... a very weak performance in China" and that "fixing some of our execution and operations... will take time".
- Cautious outlook due to increased cost pressures and currency headwinds, which may impact margins and profitability in the second half of the year. Unilever mentions "some increase in the level of competitive marketing spending, particularly in markets like U.S. and India," the "return of moderate inflation to some key commodities," and "deterioration in the last few weeks on some emerging market currencies," leading them to "remain cautious for the second half of the year".
- Slowdown in the Prestige Beauty segment in key markets like the U.S. and China, which could affect Unilever's growth in high-margin categories. The company notes that Prestige Beauty was "muted" due to consumer behavior in the U.S., particularly behind luxury , and that they are seeing "some slowdown in premium luxury in the U.S. as well as in China" , admitting that "it may last for a bit, but we don't see long-term prospects... changing".
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Gross Margin Outlook
Q: Could you elaborate on potential for gross margin levels going forward?
A: Fernando Fernandez expressed satisfaction with margin development, highlighting a 420 basis points expansion in gross margin in the first half, reaching pre-COVID levels. They expect modest gross margin improvement going forward, allocating 40% of the expansion to increased brand and marketing investment and 60% to the bottom line. However, they remain cautious due to increased marketing spend in some markets, moderate inflation in key commodities, and currency deteriorations in emerging markets. -
Market Share and Competitiveness
Q: When will market share metrics improve amid increased marketing investment?
A: Hein Schumacher noted that market share is measured on a moving annual total basis, and no major change was expected in the first half. However, recent data over the last 12 weeks shows "green shoots," giving confidence that improvements will start in the second half, consistent with prior guidance. They do not expect significant positive territory for the full year but see an improving trajectory in competitiveness. -
Pricing Outlook and Consumer Behavior
Q: What's the outlook for pricing and any changes in consumer behavior?
A: Hein Schumacher acknowledged lower pricing in the first half, particularly in South Asia and Southeast Asia due to commodity deflation. Looking forward, they expect inflation to normalize to around 2–3%, which may necessitate slight price increases towards the end of the year or early next year, but not at previous high levels. Heightened promotional activity is noted in Europe, while the U.S. remains constant. They observe increased private label market share in Europe but anticipate stabilization as inflation normalizes. -
Ice Cream Business Actions
Q: What actions are being taken to improve the Ice Cream business?
A: Fernando Fernandez detailed that after a poor year, they have improved service, restored competitiveness in pricing and promotions, and enhanced execution at points of sale. While competitiveness and shares are improving in the U.S. and Europe, performance in China has been weak due to tough market conditions and competitive pressure. Actions include premiumizing the portfolio and expanding distribution in growth regions. They expect sequential improvement quarter-on-quarter and aim to strengthen the business before its separation by end of 2025. -
Health & Wellbeing and Prestige Beauty
Q: Can you provide an update on Health & Wellbeing and Prestige Beauty?
A: Hein Schumacher reported that the combined Health & Wellbeing and Prestige Beauty businesses grew double-digit, comprising over 5% of company turnover. While Prestige Beauty faced a slowdown in the U.S. and China, they believe it is not structural. Health & Wellbeing brands like Liquid I.V. and Nutrafol are performing strongly and being internationalized. Exposure to China in Prestige Beauty is limited, and they remain selective in brand expansion. -
China Sales and Outlook
Q: How is the China market performing, and what is your outlook?
A: Hein Schumacher noted that market growth in China is muted and likely to take time to rebound. Unilever's exposure to luxury segments is limited. They lead in mainstream hair care with the Clear brand and see stability in their Home Care and Nutrition (Food Solutions) businesses. They continue to invest and introduce innovations, feeling "pretty good" about their China business despite the challenging environment. -
CapEx Allocation and Productivity Plans
Q: What are your productivity and capacity plans for the supply chain?
A: Fernando Fernandez stated they are investing over 50% of CapEx in margin expansion initiatives to increase productivity. They have a good balance between own manufacturing and third parties, with around EUR 11 billion in net book value of assets. With consistent volume growth of 2%, about 30% of CapEx will go to capacity increase and innovation, and 50–60% to margin expansion. They announced an EUR 800 million savings plan, with benefits expected more in 2025 and beyond. -
Premiumization in Personal Care
Q: Are you still focused on premiumization in Personal Care?
A: Hein Schumacher affirmed the focus on premiumization, despite a slowdown in premium luxury segments in the U.S. and China, which they believe is not structural. They are introducing premium innovations like a whole-body deodorant under the Dove brand and upgrading products under SheaMoisture and TRESemmé. Premiumization efforts are gradual and aligned with consumer demand for enhanced experience in personal care. -
Emerging Markets Outlook
Q: Do you have concerns about growth in emerging markets?
A: Hein Schumacher reiterated confidence in emerging markets, emphasizing continued investment in brands that can scale globally. They prioritize strategic fit, scalability, and key geographies like India for potential opportunities. Fernando Fernandez added that fundamentals like population growth and urbanization remain, and Unilever has strong positions in 16 of the top 20 fastest-growing economies, seeing emerging markets as a key pillar of their strategy. -
Plans for Nutrition Business
Q: What are Heiko Schipper's plans for the Nutrition division?
A: Hein Schumacher shared that Heiko Schipper sees a healthy and sound Nutrition business, focusing on condiments, cooking aids, Food Solutions, and functional Nutrition in India. Key brands like Knorr and Hellmann's grew 5.2%, ahead of company average. Heiko aims to streamline the business, scale these brands, and roll out strong innovations.
Research analysts covering UNILEVER.