Unilever first quarter sparkles as sees 'more tailwinds than headwinds'

Unilever has lifted it quarterly dividend 6% as consumer goods colossus enjoyed a strong start to 2015 with underlying sales for the first quarter ahead of analyst estimates.

Chief executive Paul Polman said the company had started to see "more tailwinds than headwinds" in its markets.

Turnover increased 12.3% to €12.8bn at the owner of brands ranging from Marmite to Vaseline to Lynx deodorant, helped by 10.6% favourable currency move and underlying sales growth of 2.8% versus a consensus forecast of 2.1%.

Analysts are expected to upgrade underlying and currency expectations for the full year.

The group had previously cautioned that the first quarter was expected to be ‘soft’, with growth improving through the year, but underlying volume growth of 0.9% and pricing improved 1.9% was behind the forecast-beating top line, along with strong growth from emerging markets with underlying sales growth of 5.4%.

Emerging markets performance was driven by improvement in India and more stable conditions in China

Although developed markets volumes enjoyed a small 0.3% growth recovery, underlying sales growth remained negative at -0.7% from continuing European weakness. North America continued to enjoy its modest price-driven pickup.

The quarterly dividend was boosted 6% to €0.302, in line with estimates, which equates to 21.8p for shareholders of the UK shares.

Unilever, which is looking to divest some of its loss-making food businesses in order to concentrate on personal care products, said the underlying sales growth was broad-based across its four categories with varying contributions from volume and price.

BRICs FALL INTO PLACE?

The emerging markets performance was driven by improvement in India and more stable conditions in China, which counterbalanced deterioration in Brazil and Russia.

Augustin Eden at Accendo Markets noted the success of Unilever's strategic dexterity in China. "The massive slowdown in the (emerging) Chinese economy hurt the company last year and it reacted in novel fashion, increasing its prices to tempt the growing middle classes," he wrote. "The tactic worked in such a way as to offset low demand with said higher prices – and boy did it work!"

Nicla Di Palma at Brewin Dolphin noted management highlighted on outlook that the group was facing a challenging trading environment.

"However, the company has undertaken initiatives to increase growth, namely it strengthened its innovation pipeline, increasing brand investment as well as expanding into premium segments and new markets", and that overall it expects volume growth ahead of markets, steady improvement in core operating margin and strong cash flow.

Unilever shares are trading on an all-time high rating

"We continue to like the story of good organic growth accompanied by margin expansion," she said. "Whilst growth in emerging markets has slowed, demand for premium products (skincare, etc) should help with pricing; furthermore, developed markets are likely to recover in our view."

The shares, up 4% to 3,061p mid-morning on Thursday, are trading on an all-time high rating but Shore Capital believes the "valuation sits comfortably within a basket of its global FMCG peers".

ShoreCap analyst Darren Shirley said he continued to view the group as "a longer term winner with its leading Emerging Market exposure (which remains a major virtue despite short-term constraints), strong balance sheet and ongoing margin potential from ‘maxing the mix’, the focus on Home Care returns and ongoing operational leverage".