Unilever Q1 2024 Trading Update: Prepare For A Change

seekingalpha05-01

Following its Q1 2024 trading update, Unilever appears well-positioned to deliver better-than-expected results for the full fiscal year.The market does not seem to price-in a margin improvement which ...

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href=https://seekingalpha.com/article/4687554-unilever-q1-2024-trading-update-prepare-for-a-change><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Following its Q1 2024 trading update, Unilever appears well-positioned to deliver better-than-expected results for the full fiscal year.The market does not seem to price-in a margin improvement which ...</p>\n\n<a href=\"https://seekingalpha.com/article/4687554-unilever-q1-2024-trading-update-prepare-for-a-change\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1599440770.SGD","symbol_name":"FIDELITY GLOBAL DIVIDEND \"A\" (SGDHDG) 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FUNDS GLOBAL DIVIDENDS PLUS \"A\" (USD) INC","BK4533":"AQR资本管理(全球第二大对冲基金)","LU0731783394.SGD":"Fidelity Global Dividend A-MINCOME(G)-SGD","LU2552382132.HKD":"WELLINGTON US BRAND POWER \"A\" (HKD) ACC","BK4558":"双十一","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","XLP":"消费品指数ETF-SPDR主要消费品"},"translate_title":"联合利华Q1 2024交易更新：准备改变","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XLP":1,"USG":1,"UL":1,"CL":1,"MDLZ":1,"PG":1,"NYSE":1,"ULVR.UK":0.6,"UN":0.6},"content_text":"Following its Q1 2024 trading update, Unilever appears well-positioned to deliver better-than-expected results for the full fiscal year.The market does not seem to price-in a margin improvement which would be the main catalyst for shareholder returns.Under the new management, Unilever is also making a notable change to its capital allocation and long-term investors should take notice.   numbeosAfter years of underperforming under its previous management, Unilever (NYSE:NYSE:UL) appears well-positioned for a much needed change and the most recent quarterly update confirms that.  The stock itself is up by more than 7% since the beginning of 2024 and is now outpacing the Consumer Staples Select Sector SPDR® Fund ETF (XLP) - something that hasn't occurred in a very long time.  Data by YChartsAlthough one quarter does not make a trend, there are some important implications for Unilever's strategy under the new CEO. At the same time, the share price reaction following the earnings release only confirms that the market is not pricing-in a meaningful change at Unilever and this is good news for shareholders.  In addition to the new CEO and Nelson Pelts still being on the board, Unilever's executive team has also undergone significant changes in 2024. From the new CFO and Chief Growth & Marketing Officer to the newly appointed Business Group Presidents of Home Care and Beauty & Wellbeing divisions.  This sets the stage for a transformative year and the trading update for Q1 2024 only confirms that.    What Was Q1 All About? Unilever's outlook for 2024 has not changed during the first quarter with revenue growth rate still expected to be within the range of 3-5% for the year. Operating margin is also expected to improve slightly during the period, in spite of the increased brand and marketing investment.    Unilever Investor Presentation At first glance, this is nothing to get too excited about and perhaps even a bit disappointing as sales growth slows down from 9% and 7% during fiscal years 2022 and 2023 respectively. However, this notable growth deceleration has been anticipated and as such already reflected within the share price. More importantly, however, high margin and strategically important segments of Beauty & Wellbeing, Personal Care and Nutrition grew at rates close or above the high end of the aforementioned range. Underlying Sales Growth (USG) in Beauty & Wellbeing reached 7.4% during the quarter, mostly driven by volume (UVG).    Unilever Investor Presentation Each of these three segments had higher operating margins (UOM) than the overall margin for Unilever and as such will provide a notable tailwind for profitability going forward. The low growth/low margin segment of Ice Cream on the other hand will be divested by the end of next year which was a highly anticipated development.    Unilever Investor PresentationPricing-led growth (UPG) has slowed down meaningfully during the quarter and stood at only 2.2% for the overall company. This, however, is hardly a problem as volumes and market share gains are picking up - especially Beauty & Wellbeing and Home Care divisions.    prepared by the author, using data from Unilever Investor Presentations Management is now shifting its focus on driving higher volumes across the company and this strategy is already delivering outstanding results in the high margin and high customer loyalty segment of Beauty & Wellbeing.   Importantly, underlying volume growth increased to 2.2%. We are laser focused on volume growth as a key indicator of the quality of our top line performance as we deploy the Growth Action Plan. Source: Unilever Q1 2024 Trading Update    Unilever Investor PresentationOn top of the higher expected volume growth and the implementation of notable price increases in 2022 and 2023, Unilever now benefits from its input costs stabilizing as global prices of palm and soybean oil fell significantly.    FRED  FREDBased on all that, the company is in a very good position to continue improving its margins in 2024 and beyond which would be more than enough to improve shareholder returns, even in the case of total revenue growth remaining within the 3-5% range.  Data by YCharts A Strong Year Ahead In addition to its improving margins, Unilever's stock offers a dividend yield of 3.6%, which is notably higher to those of its peers, such as Procter & Gamble (PG) and Colgate-Palmolive (CL).  Data by YChartsManagement has previously indicated that they remain committed to keeping the payout ratio in the mid-60s, which now stands at 55% and would likely allow for a dividend increase in 2024. The EUR 1.5bn share buyback program would also be an important addition for shareholder returns going forward.    Seeking AlphaIn the meantime, Unilever's share price remains attractively priced on a price/sales multiple basis, once we account for current margins. Note that on the graph below the 2023 period is plotted by using FY 2023 margins and its current share price.    prepared by the author, using data from annual reports and Seeking AlphaTherefore, should margins improve in 2024, the stock is likely to experience a notable multiple repricing.  Beyond this more immediate impact, long-term shareholders should also be looking forward to the separation of the Ice Cream business which would take the company one step closer to becoming a pure Personal & Home care business. It is also encouraging that the new management would take a drastically different approach when it comes to capital allocation and would steer away from mega deals that rarely contribute to shareholder returns. The failed £50bn GSK bid was a stark example of misallocation of capital and such decisions are hopefully behind us.  When it comes to strategic M&A deals and bolt-on acquisitions, I would be looking for UL to adopt a more similar approach to that of Mondelez (MDLZ) - another company influenced by Nelson Peltz. Instead of making large deals in completely new product segments, Mondelez management has been laser focused on adjacent product categories, where the company's existing brands and supply chains could be leveraged.    Mondelez CAGNY 2024 Presentation Conclusion  After Unilever reported its first trading update for 2024, the market seems to have been caught off-guard and the share price reacted accordingly. What looked as a fairly normal quarter, was in-fact better than expected and its sets up a very positive tone for the rest of 2024. On top of that, Unilever's share price remains attractively priced and the new management seems to be taking the right approach to restructuring the business and creating a viable long-term strategy. Based on all that, Unilever has recently made it to my high conviction ideas list and is among my personal favourites within the large cap consumer staples space.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2432305167"}