28th Apr 2022 10:41
(Alliance News) - Unilever PLC's pricing power will be in focus in 2022, as it warned on Thursday that cost rises will hamper its margins.
The consumer goods firm, behind brands such as Cif and Domestos, expects underlying operating margin to be at the bottom end of a 16% to 17% range in 2022.
Unilever expects second-half costs in the region of EUR2.7 billion, above its initial forecast.
For the first-quarter of 2022, Unilever's revenue rose 12% annually to EUR13.78 billion from EUR12.33 billion. Underlying sales growth was 7.3%, with prices rising 8.3%, though volumes falling 1.0%.
Unliever warned on further price hikes as it contends with "unprecedented inflation".
"The true definition of a company with pricing power is one which can push up its selling prices without dampening demand. Unilever has managed the first bit, but not the second. Each of its three core divisions has seen a drop in sales volumes in its first quarter as a result of raising prices," AJ Bell analyst Russ Mould commented.
"While Unilever talks about another solid quarter of sales growth, pressure on costs means its profit margins aren't suddenly going to fatten up because people are paying more for a jar of Marmite or a box of Magnum ice creams. In fact, it is guiding for operating margins to be at the bottom end of its previously guided range. In the UK, consumers are starting to trade down to supermarkets' own-label products because they are cheaper. That presents a real threat to Unilever's earnings in the near-term if people shun its higher priced items. There is a risk this trend spreads to other geographies."
Unilever expects underlying sales growth in 2022 to be towards the top end of a previously guided range of 4.5% to 6.5% range.
It is less optimistic on margins, however. Unilever expects full year underlying operating margin to be at the bottom end of a 16% to 17% range.
There are some products that consumers are happy to shell out more for, Hargreaves Lansdown analyst Laura Hoy commented, though for the most part, people are now more frugal.
The Hargreaves Lansdown analyst commented: "It seems we're willing to pay more for the things we missed in lockdown, like going out for ice cream, but beyond that Unilever's seen consumers pull back as their wallets are squeezed."
Unilever noted volumes in out-of-home ice cream improved as economies re-opened.
Unilever added: "This helped offset most of the volume decline in in-home channels which lapped high demand during lockdowns in 2021."
Unilever shares were 0.2% lower at 3,571.50 pence each in London on Thursday morning. It is down 9.5% so far in 2022.
Interactive Investor analyst Victoria Scholar commented: "Today's stronger sales figure has been net off by its softer full-year margin guidance, leading to a directionless session for the stock."
Unilever kicked off the year with its strategy in focus.
The company has faced investor pressure and failed also failed in its attempt at acquiring a GlaxoSmithKline PLC unit.
AJ Bell's Mould added on Thursday: "The inflationary pressures have taken the spotlight off Chief Executive Alan Jope for a while, but a resumption of normal trading conditions will inevitably revitalise the debate over whether he is the right man to keep running the business, given poor returns for shareholders under his leadership."
By Eric Cunha; [email protected]
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