(Bloomberg) -- Unilever Plc’s sales growth is accelerating as Chief Executive Officer Hein Schumacher’s turnaround of the maker of Hellmann’s mayonnaise gathers pace.
Revenue increased 4.5% in the third quarter, beating the 4.3% expected by analysts, the maker of soap and stock cubes said Thursday. Consumers are buying more of its brands again with volumes up for the fourth consecutive quarter, it added.
Unilever’s shares rose as much as 3.7% in early trading. The stock is up about 27% since the start of the year.
The performance is “testament to the extent to which Unilever has been rehabilitated,” RBC analyst James Edwardes Jones said in a note.
The Magnum maker is in the middle of a shakeup, which includes a spinoff or sale of its ice cream business and a cost-cutting initiative that will shed 7,500 jobs globally. It said the separation of its ice-cream unit, which was the fastest-growing division in the quarter partly thanks to a slowdown last year, is still on track with the split expected to complete by the end of next year.
The ice cream separation is part of Schumacher’s efforts to restore investor confidence after a period of underperformance. Like other consumer goods companies, he is weaning Unilever off price-led growth, following a stretch of high inflation, and moving back to focusing on expanding volumes.
Most of Unilever’s quarterly sales rise came from higher volumes, with input cost inflation less marked than in previous quarters. Unilever’s Chief Financial Officer Fernando Fernandez said that trend will continue for now, but warned that further increases are on the horizon. “Several key commodities in our materials basket are starting to pick up, leading to moderate cost inflation, and what we expect will be higher pricing over time,” he said on a call with analysts.
Schumacher’s efforts have been further challenged by weak consumer sentiment in countries including the US and China.
Consumer sentiment is higher in Europe and the US than a year ago, Schumacher said on a call with journalists, although spending on luxury products such as its prestige beauty line has come under pressure.
Challenging Markets
Emerging markets — which represent the majority of sales and have historically been Unilever’s growth engine — performed poorly compared to the group overall with underlying sales growth of 2.9%. There was weakness in China, falling prices in India and operational challenges in Indonesia where shoppers have been boycotting western brands over the war in Gaza.
North America, where Unilever’s portfolio is dominated by beauty, supplements and personal care, was the fastest-growing geography, pointing to the structurally stronger growth path of those sectors.
Still, Unilever reiterated its annual target of underlying sales growth of between 3% to 5%, with the majority coming from volume. Underlying operating margin for the full year is expected to be at least 18%.
Yogurt maker Danone also beat expectations in the third quarter Thursday, bolstered by its health-focused portfolio.
Danone and Unilever are transitioning to volume-led growth more successfully than Nestle SA: The world’s biggest food group cut its full year outlook for the second quarter last week. That marks a reversal of fortunes for Nestle and its Anglo-Dutch peer Unilever, which was until recently the laggard.
(Updates with CFO comment in seventh paragraph, CEO comment in ninth paragraph.)
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