Unilever PLC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Growth Balance: Underlying sales growth 3.4% in first half, balanced volume and price. Volumes up 1.5%, price up 1.9%.
• Gross Margin Strengthening: Structural improvement in gross margin, with brand marketing investment at 15.5% of turnover.
• Developed Markets Outperformance: North America had 5.4% underlying sales growth (3.7% volume), Europe 3.4% (2.8% volume).
• Emerging Markets Improvement: Asia Pacific Africa grew 3.5% in first half, accelerating to over 5% in Q2. India improved, China and Indonesia showing signs of recovery.
• Ice Cream Demerger: Ice Cream started operating as standalone on July 1, demerger in mid-November. Unilever retains <20% stake, to sell over 5 years to pay separation costs and reduce debt.

Segment Performance

• Beauty & Wellbeing: Underlying sales growth 3.7% in first half, driven by 1.7% volume and 2% price. Volume CAGR 3.2% over 2 years. Power Brands (over 75% of turnover) grew 3.8% in first half, including 1.6% volume.
• Personal Care: 4.8% underlying sales growth in first half, driven by 1.4% volume and 3.3% price. 2-year volume CAGR 2.3%. Dove grew high single digits.
• Home Care: 1.3% underlying sales growth in first half, driven by 1.1% volume and 0.2% price. Wonder Wash and Cif Infinite Clean drove growth.
• Foods: 2.2% competitive sales in first half, driven by 0.3% volume and 1.9% price. Hellmann's flavored mayonnaise a key driver.
• Ice Cream: 5.9% underlying sales growth in first half, driven by 3.8% volume and 2% price. Magnum's Utopia range contributed to double-digit growth. Revenue contribution: Ice Cream was 13% of group turnover before demerger.

Guidance

• Top Line: Underlying sales growth expected 3%-5% for full year 2025, with second half outpacing first, supported by developed markets and emerging markets (especially Asia).
• Bottom Line: Anticipate improvement in underlying operating margin, with second half margins at least 18.5%, driven by volume growth leverage, productivity, and value chain interventions.

Risks

• Macro and Currency Uncertainty: Uncertainty in macroeconomic and currency environments could impact performance.
• Latin America Challenges: Poor volume performance in Latin America in Q2 due to slowing markets and currency appreciation, though recovery expected later.
• Tariffs and Supply Chain: Tariffs on some packaging/materials and supply chain disruptions posed temporary challenges, but managed to ensure supply resilience.

Question and Answer

Q: Since you mentioned the ex Ice Cream performance, so ex Ice Cream H1 was growing at 3% with 1% volume. Do you expect to see the ex Ice Cream acceleration -- the acceleration you mentioned in volume showing into the ex Ice Cream portfolio in the second half of the year...

A: We run the business with the intention of delivering volume growth about 2% for our remaining company, and we are very confident that we will achieve that in the second half. There are several factors that give us confidence to acceleration of growth in the second half...

Q: Could you allow me a second question?

A: We are convinced of our strategy of bolt-on M&A. We continue piling assets in the Beauty and Personal Care space and the Wellbeing space particularly in the U.S. with the intention of really building a portfolio of American brands with great potential to travel internationally...

Q: So yes, 2 for me. First one is, Fernando, can you dive a bit more into emerging markets? Clearly, what we've got here today, Latin America a bit worse, Asia a bit better...

A: It has been a weak quarter in Lat Am for us. We have been lapping very, very strong comparators and markets are under pressure at the time in which we had to increase prices to cope with a sizable devaluation of currencies...

Q: Firstly, I wanted to talk to you about the organizational kind of redesign that you announced last November with the sort of segmentation of the business into top 24 markets and One Unilever markets...

A: It's true. We have organized ourselves in top 24 markets, and from market 25 onwards, we run it in a One Unilever basis. We believe that the biggest markets deserve the focus and specialization of a category-led organization...

Q: Just 2 questions first. First one, going back to the margin guidance, and the implied a strong progression that you are going to have in H2...

A: Olivier, I think first, it's important to highlight the quality of margins and quality of profitability. This is coming through from the right levers that we exercise, which is really volume, superior mix, absolute world-class savings coming through from our procurement organization and a cost discipline end-to-end and cost to serve...

Q: I mean, for my first question, maybe to follow up on what you've just said, Fernando. Your BMI levels, because they increased again in the first half, 15.5%, more than 200 basis points above the levels of 2022...

A: The level of investment. We have really increased our investment level significantly from 2022 onwards. There is an implicit recognition that the levels at which we were investing 3 years ago were absolutely uncompetitive. We feel much more comfortable now with the level of investment between 15% and 16%...

Q: So 2 from me. The first one is could you just give us a bit more of a kind of a wrap up of your market shares across the business and where you think you are relative to your end markets...

A: Market shares, the picture I can give you is that we are gaining -- I feel you look at the same numbers I look at. I feel many of you publish Nielsen data. And I believe it's very clear that our performance in U.S. and Europe is significantly above the market, so we are gaining shares in U.S...

Q: I've got 2. The first one was on tariffs. You highlighted some inventory builds for supply chain management and tariffs and so on at the half year stage...

A: So on the tariffs part, it's good to clarify that most of our supply chain is actually localized. But we did have items of packaging material and some critical raw material coming out of various markets, which are subject to tariff...

Q: Two from us. One more broader, one more detailed, I guess. Just the broad one, just on pricing levels, are there any categories or markets where you feel that prices are too high...

A: On pricing, I have mentioned before, there are a couple of, I would say, category country sales in which we probably have gone too far. In the case of Laundry Brazil, we increased pricing...

Q: I'll be quick. First of all, are you still targeting hard currency EPS growth in 2025? And could you help us think about your return on invested capital improvement...

A: Vika, thank you for that. Listen, the commitment to hard currency earnings for us is a multiyear priority. It's a strategic priority, and we are absolutely committed to that...

Q: Fernando, I hope, the knee is feeling better. Just on the channel shifts in the U.S., I mean, Amazon is, by far and away, the fastest-growing channel for you for most people...

A: Regarding channel shifts, there is a big evolution in how to reach consumers. And I talk a lot about the new models of reach and persuasion. And retail media plays a very important role...

Q: Next question comes from Tom at Deutsche...

A: Clear. Thank you, Tom. Regarding channel shifts, there is a big evolution in how to reach consumers. And I talk a lot about the new models of reach and persuasion. And retail media plays a very important role...