(Bloomberg) -- Unilever Plc shares rose after it increased volumes and raised profitability in the first half of the year as Chief Executive Officer Hein Schumacher’s turnaround begins to gain some traction.
The Anglo-Dutch consumer group’s underlying operating margin was almost 20% in the first half, compared with around 18% expected by analysts. Volume growth also ramped up as some shoppers started buying more branded goods again as inflationary pressures eased.
Shares of Unilever rose as much as 7% in early trading in London. The stock is up more than 10% in the last 12 months.
The maker of Dove soap is in the middle of a shakeup which includes a potential spinoff or sale of its ice cream business and a cost-cutting initiative that will shed 7,500 jobs globally. Schumacher has also scaled back some of the company’s environmental and social goals, saying the previous targets were unrealistic. His turnaround plan aims to simplify the group and do fewer things better.
Volumes have risen for the last three quarters, Schumacher said, in a sign some shoppers are spending more or switching back to branded goods, including “power brands” like Hellmann’s mayonnaise and Knorr stock cubes. However, overall sales growth in the first half was lower than expected, tempered by falling prices in India and Indonesian shoppers boycotting western brands over the war in Gaza.
“Underlying sales growth was slightly below, but volume growth, which we consider as more important, was a beat,” said Fernand de Boer, a senior equity analyst at Degroof Petercam. “But even more important: margins are flying.”
Unilever said it expects an underlying operating margin of at least 18% for the full year, when previously it had only forecast a ‘modest improvement’ from last year’s 16.7%.
Profit growth will be slower in the second half of the year though, said Chief Financial Officer Fernando Fernandez, as Unilever increases marketing spending in countries such as India and grapples with rising prices of raw materials like cocoa and aluminum.
Beauty, personal care and homecare continued to outperform the food division, bolstering the argument for further restructuring of the group. Schumacher told Bloomberg TV he wants to further streamline the nutrition business, focusing it more on on big condiment and cooking aid brands like Hellmann’s and Knorr.
Unilever reiterated guidance of organic sales growth between 3% and 5% for the year.
“Whilst I do believe we have made progress against our stated ambitions, I am the first to acknowledge that we still have a lot to do to implement the changes that are needed to achieve a level of consistent performance,” Schumacher said on an analyst call.
--With assistance from Lizzy Burden and Joel Leon.
(Updates with analyst quote, CFO and ceo comments throughout.)
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