Here’s why the Unilever share price is soaring after Q1 earnings
Picture supply: Unilever plc
Shopper staples corporations aren’t all the time essentially the most dynamic companies to spend money on. However the Unilever (LSE:ULVR) share value is rising after its newest earnings report.
The corporate reported 4.4% income development and the report exhibits CEO Hein Schumacher’s restructuring plan is on observe. So ought to traders take into account shopping for the inventory?
Gross sales
Unilever’s enhance in gross sales is spectacular for a few causes. The primary is that it demonstrates good pricing energy, an indication of a long-term aggressive benefit.
Within the fast-moving shopper items (FMCG) trade, switching prices are virtually non-existent. This makes it troublesome for companies to extend their costs with out dropping clients.
Unilever nevertheless managed to lift costs by 2.2% whereas additionally growing gross sales volumes by the identical quantity. That’s an indication the corporate’s manufacturers make it troublesome to disrupt.
Importantly, the strongest development got here from the corporate’s core manufacturers – those it plans on specializing in going ahead. These achieved 6.1% development, in comparison with smaller 2.3% rise from ice cream gross sales.
A triple increase
Greater gross sales are encouraging for traders as a result of they typically result in increased income. However there was extra excellent news on this entrance from the Unilever report.
The corporate mentioned the elevated costs have been resulting in increased margins. If that’s proper, then the following replace ought to present that income are rising sooner than gross sales.
Unilever additionally introduced plans to spend round £1.28bn on share buybacks beginning in Q2. That ought to convey down the variety of excellent shares, additional boosting earnings per share.
All in all, I feel this was an excellent report for the corporate. So I’m not shocked to see the inventory going up as traders take within the information.
Technique
Unilever is doing what it got down to do at the beginning of the yr by way of divesting weaker items to concentrate on core manufacturers. That’s a method that has labored nicely for corporations corresponding to GSK and Coca-Cola.
Whereas I’ve been typically constructive on this method, I’ve been doubtful concerning the agency’s means to generate development in its remaining manufacturers. However the newest replace’s fairly encouraging on this entrance.
The weak leads to the ice cream division are each good and unhealthy information. On the one hand, it implies the agency’s resolution to separate the unit’s a very good one.
That mentioned, the corporate hasn’t bought its ice cream manufacturers but. And its means to get a very good value for the property relies on them wanting engaging – with declining gross sales volumes not serving to.
Time to purchase?
Regardless of the constructive information, my estimate of Unilever’s intrinsic worth hasn’t actually modified. I’ve been constructive concerning the firm’s plan because the begin of the yr and the newest replace principally confirms this.
Consequently, I’m nonetheless seeking to purchase the inventory at a value beneath £38. However the 5% soar within the share value as we speak makes that only a bit tougher in the intervening time.