Unilever lifts outlook on strongest volume growth in over a decade

By Shashwat Awasthi and Richa Naidu

LONDON, July 28 (Reuters) - Unilever delivered its best quarter for volumes in over a decade and upgraded its annual forecast on Tuesday, as consumers reached for brands like Vaseline, Dove and Cif despite household budget concerns stemming from the Iran war.

Unilever's shares, which have slid 16% since the conflict began, rose as much as 6.8% to £49.43 in early morning trading. They were up 5.8% at £48.96 by 0745 GMT, on track for their best day in two years if gains hold.

The consumer goods giant has been shifting towards beauty and well-being brands under CEO Fernando Fernandez, who was appointed last year to accelerate its turnaround strategy. Unilever is in the process of spinning off its slow-growth foods business into a $65 billion entity with U.S. spice maker McCormick.

Tuesday's results underscore the company's motivation to sell the unit, with sales volumes for foods falling 0.1% and weighing on over 5% growth at each of its other three businesses.

"These much stronger than expected results seem likely to drive a significant uptick in positivity today and perhaps even induce investors to look beyond the noise of the ongoing foods sale process," Bernstein analyst Callum Elliott said.

UNILEVER RENEWS MARKETING PUSH FOCUSED ON "POWER" BRANDS

The British company said second-quarter volumes rose by 5.5%, powered by strength in key markets like India, Indonesia and Latin America, helping it comfortably beat underlying sales growth estimates.

Like its peers, Unilever ceded market share to private label brands owned by retailers during the Covid-19 pandemic, driving industry sales volumes to record lows.

A subsequent supply chain crunch and surge in raw materials prices prompted by Russia's invasion of Ukraine hurt Unilever's ability to spend on marketing and brand development, further eroding sales volumes.

But in recent years, it has invested heavily in marketing. It spent 16.1% of its overall turnover on marketing in the second quarter, with a focus on its key "power" brands like Axe, Cif and Vaseline and a notable branding push at the FIFA World Cup.

"The days of underinvesting in our businesses are over," Unilever Chief Financial Officer Srinivas Phatak said on an investor call.

GROWTH BOOST EXPECTED POST FOODS UNIT SALE, ANALYST SAYS

Barclays analyst Warren Ackerman said the results were "further evidence that Unilever's home and personal care portfolio can deliver growth well above many global staples peers."

"We think Unilever will deliver the best growth after L'Oreal post completion of the McCormick deal, and our conviction of this is only going up."

Unilever said the separation of its foods business was progressing well and expects it to be completed by no later than mid-2027.

While the Middle East conflict has saddled companies with higher costs this year, Unilever has softened the blow by raising prices.

The company said it now expects underlying sales growth for 2026 to be within its multi-year forecast of 4%-6%, up from its earlier forecast of growth at the bottom end of that range.

It forecast sales growth of 4%-5% in the second half, driven by higher pricing.

Unilever posted underlying sales growth of 5.8% for the quarter ended June 30, compared with analysts' average expectation of 4.3%, according to a company-compiled consensus.

"We're on course to getting this merger finalised," finance chief Phatak said.

($1 = 0.8798 euros)

(Reporting by Shashwat Awasthi in Bengaluru and Richa Naidu in London; Editing by Sonia Cheema and Joe Bavier)