Unilever reported third-quarter revenue of €14.7bn, reflecting underlying sales growth of 3.9% (4.0% excluding Ice Cream), slightly ahead of market forecasts. Growth was driven by its Power Brands and an improved performance in emerging markets, with all business units contributing positively.
The group expects to deliver cost-savings of around €650mn of its €800mn cost-saving programme in 2025, with the remainder to be completed in 2026.
As previously announced, the demerger of its Ice Cream business has been delayed by the US Government shutdown, but is still expected to complete by the end of 2025.
Full-year guidance has been maintained, with underlying sales growth expected to land in the 3-5% range.
A quarterly dividend of €0.4528 was announced, up 3%.
The shares were broadly flat in early trading.
Our view
Unilever managed to edge past growth expectations in the third quarter, despite some subdued markets. The uplift came from a healthy mix of both volume and price growth, with all business units contributing positively in the period.
Spurring on the next leg of growth won’t be easy amidst the current economic and tariff uncertainty. The demand picture in developed markets is looking fairly soft, so driving sales higher here will require gaining market share. On that front, Unilever is starting to deliver thanks to its recent advertising initiatives – more on that later.
Emerging markets are the real growth lever in our view. Despite some unfavourable tax changes in India, digital initiatives and a shift in focus towards more premium products are helping to grow the top line. And with these end-markets generally improving, we see a long runway of growth ahead if Unilever can execute well.
We’re supportive of the group’s sharper focus, which is concentrated on doing fewer things but doing them better. That means spinning off its Ice Cream business and plans to cut costs over the next few years are at the top of the agenda, and so far, we’re impressed with the pace of progress.
The group’s collection of 30 so-called ‘Power Brands’ is its beating heart. These include names like Dove, Domestos, and Hellmann’s, making up over 75% of total sales. We expect continued investment behind these names, with brand and marketing investment now standing at 15.5% of revenue, its highest in a decade.
The outlook on margins for the year remains intact, with the gross margin also reaching its highest level in a decade. This is a clear sign that strategic actions are starting to take effect, and we see potential for expansion in the coming year, despite cost and currency headwinds.
It’s important to consider the indirect effects of tariffs on consumer sentiment and purchasing. We believe Unilever's strong brands and ability to pass on costs should ensure its resilience. The 3.5% prospective forward dividend yield is currently supported by strong free cash flow and a robust balance sheet. But, as ever, potential returns can't be relied on.
All in, there are very clear signs that the new management team are making progress and Unilever remains a quality business with attractive fundamentals. If it can deliver on planned cost cuts and spin-off Ice Cream without causing too much damage, then achieving consistent mid-single-digit sales growth is on the cards. The valuation isn’t too demanding, but there is a softer market to contend with, and there’s plenty of execution risk ahead.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Unilever’s overall management of material ESG issues is strong.
Unilever's latest sustainability efforts followed global reporting standards, with the board overseeing progress and a dedicated committee tracking risks and goals. The company focuses on three main areas: improving planet health, enhancing people’s wellbeing, and fostering social inclusivity, with ambitious targets like 100% recyclable packaging by 2025 and biodegradable ingredients by 2030. However, Unilever faces criticism for its plastic pollution and struggles to meet some of its plastic-related goals, suggesting there's still work to be done.
Unilever key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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