Unilever sales fall less-than-expected; Keeps India tea arm

The The maker of Lynx, Dove and Vaseline on Thursday said underlying sales fell 0.3% in the three months to June 30. Analysts had been expecting a 4.3% decrease.

Unilever said first-half food service sales slumped by almost 40% and out of home ice-cream by nearly 30%. This was offset by a 49% rise in e-commerce sales, while North America reported growth of 7.3%.

Turnover shrank 1.6% to €25.7bn (£23.4bn). However, underlying profit increased 3.8% on a constant currency basis before weak exchange rates eroded 3.2% of that growth.

Underlying earnings per share rose 6.4% despite a negative currency hit of 3.7%, while free cash flow climbed €1.3bn to €2.9bn as Unilever bolstered its balance sheet amid the pandemic.

Unilever said lockdown “meant that consumers had fewer personal care occasions from going to work or socialising”, which led to a 0.9% cent fall in sales in its beauty and personal care division to €5.3bn.

A slump in sales of Prestige beauty range products, which includes brands such as Kate Somerville, Ren and Hourglass, was partly offset by a surge in demand for soap as consumers followed medical advice to wash their hands to prevent the spread of the coronavirus. Unilever’s homecare division, which includes Domestos and Cif, increased sales by 4%.

Hargreaves Lansdown analyst Sophie Lund-Yates said the potential sale of major tea brands such as PG Tips were the firm's latest effort to shed some weight in the fa"ce of rapidly changing customer habits".

"Boosting agility and becoming more streamlined is a core pillar of Unilever’s strategy to get sales moving in the right direction, as things were sluggish even before the added pressure of coronavirus disruption.

"A bright spot comes in the form of better sales from developed markets. This had been a bit of a sore point but has benefited from the comparably lighter lockdowns in these regions compared to those seen in China and India, where there were more issues with the supply and availability of goods."

"It’s worth remembering that emerging market growth is important for the future, so we’d like to see the sales tap turn back on in these regions sooner rather than later.”

AJ Bell investment director Russ Mould said the positive reception from the market, reflected in an 8% share price rise in morning trade, showed investor sentiment towards Unilever may have shifted.

"In a world where investors have been obsessed with growth, one might have thought Unilever’s pedestrian performance would have gone down like a cup of cold gravy. However, resilience is a highly-desired characteristic and the latest trading update is likely to attract a lot of interest from people who had previously dismissed the company as being too boring,” he said.