Unilever increased prices for its products 11 per cent in the second quarter from a year earlier and raised its full-year sales guidance, as it battles to pass on more cost increases to consumers.
The consumer goods maker said it had yet to pass on the full impact of input cost rises to shoppers in what chief financial officer Graeme Pitkethly called a “truly unprecedented cost landscape”.
He said Unilever was increasing advertising to keep households loyal to its brands despite the price rises, and expected margins to remain lower for the rest of the year, with cost inflation expected to peak in the second half.
Pitkethly said that as prices rose, supermarket own-brand products were taking market share from brands owned by Unilever in Europe and the US.
“We’ve stepped up the investment in our brands. We’re definitely advertising more: we stepped up brand marketing investment by €200mn in the first half,” he said.
The company, one of the largest on the London market, has been affected by steep rises in the prices of commodities such as palm oil while already contending with lacklustre performance.
While prices for palm and crude oil have retreated recently, Pitkethly said costs for other commodities Unilever uses, such as natural gas and kerosene distillates, continued to increase.
Prices for Unilever merchandise, which include Hellmann’s mayonnaise, Cif cleaning products and Wall’s ice cream, rose 11.2 per cent in the three months to the end of June, but at the cost of a 2.1 per cent drop in sales volumes, bringing underlying sales growth to 8.8 per cent for the quarter.
Sales growth for the full year will be above a previously signalled range of 4.5 to 6.5 per cent, Unilever said. Turnover was up 8.1 per cent in the first half year on year to €29.6bn.
Shares in the group rose 2.2 per cent in early London trading on Tuesday to £40.04.
Underlying operating margin was 17 per cent, down from 18.8 per cent a year earlier, and is expected to come in at 16 per cent for the full year, marking the impact of cost increases that will not be fully passed on to consumers.
Martin Deboo, analyst at Jefferies, said the numbers reflected “stronger than expected price realisation in a tough commodities environment”.
Unilever appointed activist investor Nelson Peltz to its board in May. The appointment raised hopes among other shareholders for a shake-up at company, whose share price has been languishing since chief executive Alan Jope took over in 2019.
Investors had also reacted poorly to Jope’s move late last year to try to acquire GSK’s consumer health division, now spun off as Haleon, for £50bn.