Unilever raised its product prices by 11 percent in the second quarter from a year earlier and raised its full-year sales guidance as it struggles to pass on more cost increases to consumers.
The consumer goods maker said it had yet to pass on the full impact of rising input costs to buyers in what chief financial officer Graeme Pitkethly called a “truly unprecedented cost scenario”.
He said Unilever is ramping up advertising to keep households loyal to its brands despite rising prices, and expects margins to remain lower for the rest of the year, with cost inflation expected which reaches its peak in the second half.
Pitkethly said that as prices rose, supermarket own-brand products were taking market share from Unilever-owned brands in Europe and the US.
“We have increased investment in our brands. We are certainly announcing more – we increased investment in brand marketing by €200 million in the first half,” he said.
The company, one of the biggest in the London market, has been hit by sharp rises in the prices of raw materials such as palm oil, although it already faces a lackluster performance.
While palm and crude oil prices have retreated recently, Pitkethly said the costs of other commodities used by Unilever, such as natural gas and kerosene distillates, continued to rise.
Prices for Unilever’s goods, which include Hellmann’s mayonnaise, Cif cleaning products and Wall’s ice cream, rose 11.2% in the three months to the end of June, but at the expense of a fall of 2.1% in sales volumes, which led to underlying sales growth. to 8.8% for the quarter.
Full-year sales growth will be above a previously noted range of 4.5 to 6.5 percent, Unilever said. Turnover increased by 8.1% in the first half of the year to 29.6 billion euros.
Shares in the group rose 2.2 per cent in early London trading on Tuesday to £40.04.
Underlying operating margin was 17 percent, down from 18.8 percent a year earlier, and is expected to be 16 percent for the full year, marking the impact of increases of costs that will not be fully passed on to consumers.
Martin Deboo, an analyst at Jefferies, said the figures reflected “stronger-than-expected price realization in a tough commodity environment.”
Unilever appointed activist investor Nelson Peltz to its board in May. The appointment raised hopes among other shareholders of a turnaround at the company, whose share price has remained flat since chief executive Alan Jope took over in 2019.
Investors had also reacted badly to Jope’s decision late last year to try to acquire GSK’s consumer health division, now spun off as Haleon, for £50bn.