The world’s second-largest consumer goods company, Unilever, reported June quarter sales growth below analysts’ estimates on Thursday as it struggled with a truckers’ strike in Brazil and weak pricing power, but the outlier was India showing strong volume growth.
At 1.9 per cent, which excludes the recently divested spreads business, Unilever’s sales growth for the second quarter was below the 2.3 per cent, average estimate of sector analysts, but India growth was led by the goods and services tax, whose benefits were passed on to consumers, Unilever said.
The region of Asia, Africa, Middle East, Turkey, Russia, Ukraine, and Belarus (Asia/AMET/RUB), which includes India, saw second-quarter sales growth of 6.3 per cent, Unilever said, ahead of its other two regions — The Americas and Europe. Volume growth of 5.6 per cent drove second-quarter sales growth for Asia/AMET/RUB, the company said, with price-led growth coming in at 0.7 per cent only, as the company saw sense in keeping prices down amid challenging market conditions.
The 5.6 per cent volume growth, a Unilever presentation showed, is the highest in six quarters and came at a time when markets such as Indonesia, South Africa, Russia, Brazil, and even China struggled. The latter (China), Unilever said, saw strong e-commerce sales for the second quarter, which were partially offset by a decline in air purification sales.
For the first half of the 2018, Unilever's numbers mirrored the trend seen in the second quarter, with sales growth coming in at 2.7 per cent, led by a 2.5 per cent volume growth and 0.2 per cent price-led growth.
The region of Asia/AMET/RUB again remained ahead of the other two regions, reporting a 6.1 per cent sales growth, led by a volume growth of 5.1 per cent and 0.9 per cent price-led growth.
"Our first half results show solid volume-driven growth, which was achieved despite the effects of an extended truckers' strike in Brazil, one of our biggest markets. Growth was driven by strong innovation and continued expansion in future growth markets. The margin improvement was of high quality and in line with our strategy, driven by further gross margin progression, increased investment behind our brands and strong savings delivery," Paul Polman, chief executive officer, Unilever said.
Analysts in India have already said that inflation, led by crude, was a challenge for consumer goods companies, including Unilever in the coming months, since it has the potential to affect volume growth, though price-led growth will improve.
The Indian unit of Unilever — Hindustan Unilever — called out this risk on Monday, saying it was watching both crude and currency volatility closely.
The company has already taken an estimated to 2-2.5 per cent price hike in its home care portfolio (mainly detergents) in the April-June period and is expected to widen its pricing action across categories in the coming quarters. Polman said he saw sales growth for the company in the 3-5 per cent range for 2018, with an improvement in underlying operating margins and strong cash flows.
"Our strategy is to take judicious price hikes. Since we have a portfolio of brands, we don't do it on an equivalent basis across pack sizes. We look at it from an overall point of view, keep in mind the price-value equation and then take (price) hikes," Sanjiv Mehta, chairman & managing director, Hindustan Unilever (HUL), said on Monday.