ULVR Unilever Plc

By Carol Ryan 

Unilever is playing a poor hand well. A big food-service business and exposure to emerging markets will remain a problem, but the company showed new strengths in its second quarter.

The maker of Dove soap and Hellman's mayonnaise said Thursday that sales in the three months through June were roughly flat compared with the same period of 2019, stripping out the impact of currency and portfolio changes. That easily beat the 4.3% decline that analysts covering the stock were expecting. Unilever's shares jumped 8% in early trading, making it the biggest gainer in London's blue chip FTSE 100 index.

Unilever met the strong demand for its food and hygiene products as consumers do more cooking and cleaning at home. Sales of hand sanitizer -- previously a minor part of its business -- grew more than 20,000% in the quarter. In less than six months, Unilever's hand-sanitizer business has grown larger than the market leader last year.

Sales in North America increased 9.5% and Unilever is gaining market share again in this important market. Free cash flow almost doubled to EUR2.9 billion ($3.35 billion) in the first half thanks to working capital improvements. And operating margins grew as Unilever saved money on marketing. While management expects to spend more on advertising as lockdowns are lifted, the company should get more bang for its buck as media rates have fallen.

Unilever still has major challenges. It makes 60% of total revenue in developing countries, where consumers aren't stockpiling household essentials at the same rate as in Europe and the U.S. That puts it at a disadvantage to the likes of Nestlé, which made 42% of revenue in emerging markets last year. Divisions that rely on food being consumed outside the home -- such as its ice-cream brands and catering supplies -- will be depressed for some time. Even before the pandemic hit, the company's 2019 sales growth was below the low end of its 3-5% target.

After Thursday's share price jump, Unilever still trades at a roughly 14% discount to competitors Nestlé and Procter & Gamble as a multiple of projected earnings. That looks justified given a trickier outlook. For now though, Unilever is making the best of what it can control.

Write to Carol Ryan at carol.ryan@wsj.com

(END) Dow Jones Newswires

July 23, 2020 08:04 ET (12:04 GMT)

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