This Consumer Staple Giant Has Turned the Corner

This Consumer Staple Giant Has Turned the Corner

Posted On August 14, 2023 9:23 am

Stability can be a virtue in any economic climate.

Consumer staple stocks are the very epitome of stability. An analysis by Verdad Research found the sector had the lowest income statement volatility of any listed sector between 1996 and 2023. Most companies that make consumer staples have reliable cash flows and steadily growing dividends—and history shows that reliable cash flows and rising dividends are an attractive combination for investors.

Here’s an example of such a company…

I’m talking about none other than Unilever PLC (UL), whose products are used by more than 3.4 billion people every day in over 190 countries. The company has more than 400 brands, 14 of which had sales in excess of $1 billion in 2022.

Unilever has five broad brand families: Beauty & Wellbeing (20% of second-quarter sales), Personal Care (22%), Home Care (19%), Nutrition (21%), and Ice Cream (18%). Some of the best-known brands in each category respectively include Dove, TRESemmé, Axe, Lifebuoy, Hellmann’s, Knorr, Magnum, and Ben & Jerry’s.

Unilever’s Turnaround Has Begun

The good news is that after years of underperformance, it looks like Unilever is finally turning around under its newish CEO, Hein Schumacher.

On July 25, the company reported better-than-expected half-year results. Underlying sales rose 9.1% for the first half of 2023 versus the first six months of 2022, which beat consensus estimates of 8.3%. Operating profits climbed 23%, to about $6 billion.

The results were a continuation of what Unilever achieved in 2022—namely passing on higher costs to consumers, to protect and grow its margin.

Volume was flat in the first half of 2023, with the number of items sold falling by only 0.2% despite underlying price rises of 9.4%. However, Unilever also posted volume growth in the Beauty & Wellbeing and Personal Care divisions. This suggests consumers had no problem with buying TRESemmé and Dove at higher prices. Underlying growth at the brands that post more than a billion dollars in annual revenue, such as Hellmann’s, came in at 10.8%.

Add it all up and the result was a 30 basis point uplift in gross margin and a 10 basis point increase in underlying operating margin in the half. In addition…

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