Unilever beats forecasts but warns of even higher inflation next year

Consumer goods multinational Unilever has warned shareholders that it is under pressure to hike prices to offset surging costs, and expects inflation to be even higher next year.

Unilever posted sales growth of 2.5 per cent in the third quarter, above analyst expectations of 2.2 per cent, and maintained its full-year profit forecasts.

The firm said it was able to shake off weak revenues in South East Asia, where business continues to be hampered by Covid-19 restrictions, as it saw strong performance in its key markets of the US, China and India.

Inflationary pressure leaves a sour taste for investors in the Marmite maker 

Unilever saw turnover of €13.5billion as a 1.5 per cent dip in sales volume was countered by a 4.1 per cent increase in price growth, with the firm ‘[taking] pricing action to offset rising commodity and other input costs’.

Inflation is weighing on many businesses’ most recent financial results, forcing consumer goods firms like Nestle to hike prices, but most bosses have said they expect price growth pressures to begin to subside into 2022.

However, chief executive of Unilever Alan Jope told investors on Thursday: ‘Cost inflation remains at strongly elevated levels, and this will continue into next year.

‘We have and will continue to respond across our categories and markets, taking appropriate pricing action and implementing a range of productivity measures to offset increased costs. We continue to expect that we will deliver in line with our margin guidance of around flat for the full year.’

Commenting on Unilever’s performance, Hargreaves Lansdown Select fund manager Steve Clayton said the firm demonstrated ‘resilience, with a solid outcome in an especially challenging quarter’.

‘The group has been raising prices to defend its margins against a panoply of higher costs. It is encouraging to see the group able to push these through, but at some cost to sales volumes in the quarter.’

Clayton added that the group’s dividend, which was approved at €0.43 (35.98p) per share for the quarter.

He said: ‘The group paid dividends throughout the pandemic, demonstrating the sheer strength of the business, which comes from selling millions upon millions of everyday products to consumers all around the world, each and every day.’

Unilever shares are up 1.2 per cent this morning to 3,865p, but remain down 13.8 per cent year-to-date. The firm said it expects its ongoing €3billion share buyback programme to be completed by the end of the year.

Freetrade’s senior analyst Dan Lane said: ‘A slight uptick in sales on Q3 last year won’t be cause for celebration this morning – shareholders used to seeing red lines over the past 12 months will have wanted more than that.

‘But Unilever’s ability to pivot towards its ecommerce channels is paying off. Moving even further into Beauty has also clearly been a shrewd move – the likes of Dove and Vaseline are more than holding up their end of the bargain in the skincare division.

The reality is Covid is going to leave a very tricky path ahead for Unilever though.

‘They’ve ridden the post-crisis wave of low rates but that pricing power and brand strength could really be put to the test sooner rather than later.

‘A decent dividend and buyback scheme can’t detract from a share price that has ebbed and flowed over the past five years.

‘If consumers and investors fall out of love with the Ben & Jerry’s maker, its Beauty range might be the only thing attractive about it.’

This post first appeared on Dailymail.co.uk