Unilever lifts full-year margin target after first-half improvement

Previous target at 80 basis points, they now expected operating margin to grow by 100 basis points

Unilever lifted its full-year margin target on Thursday after seeing a big improvement in the first half, underlying its ability to boost returns as an independent firm after rebuffing a $143 billion takeover bid earlier this year.

The Anglo-Dutch conglomerate whose products range from Hellmann's mayonnaise to Dove soap said it expected underlying operating margin to grow by at least 100 basis points this year. Its previous target was at least 80 basis points.

The company's profit margins became an area of investor scrutiny when February's aborted takeover bid from Kraft Heinz forced Unilever into a deep business review aimed at improving performance on its own.

Its margin improved 180 basis points to 17.8 per cent in the first half of the year, helped by an acceleration of its cost-savings and productivity programmes, and a 130 basis point drop in brand and marketing spending.

Analysts welcomed the margin improvement but voiced concern that it was largely driven by reduced marketing spending, which can hit sales.

"Quantity good ... quality less so," RBC Capital Markets analysts wrote.

Unilever said marketing spending would rise in the second half, as new product launches were skewed to that period. It said full-year brand and marketing spending should be about flat with the figure year ago.

Unilever shares were up 1 per cent at 0737 GMT.

The global packaged goods sector has seen a wave of moves to shake it up this year as sales slow amid changing consumer habits and increased competition from start-up brands.

Besides the upheaval at Unilever, activist investors are targeting Nestle and P&G, accusing them of being too slow to react to industry changes.

No volume growth 

Underlying sales rose 3 per cent in both the second quarter and the first half, excluding currency fluctuations and acquisitions.

Analysts on average expected growth of 3.2 per cent for the quarter and 3.1 per cent for the six-month period, according to a consensus supplied by the company.

The company stood by its full-year sales forecast for growth in the 3 to 5 per cent range.

Sales growth for the six months was due entirely to pricing, as volume was flat. But volume should accelerate in the back half of the year, it said, helped by new products.

Underlying earnings per share rose 14.4 per cent to 1.13 euros per share.

Regarding the sale of its margarine and spreads business, CFO Pitkethly said Unilever planned to distribute details by the end of autumn. The firm is carving out the whole business, which operates in some 60 countries, but could sell it in pieces.

Pitkethly said industry players might be able to add value to the emerging market business, while the developed markets business might be more interesting to private equity players.

"We don't have to sell it in one block and will only do that if it's a superior value solution," Pitkethly told Reuters.

He said Unilever was also on track to announce the result of a review into its dual-headed structure by the end of the year.