While we swelter in the midst of July’s record-breaking heatwave, it’s easy to forget how grey and wet May and June were. Consumer goods giant Unilever (LSE: ULVR) remembers, though.
Not screaming for ice cream
This morning’s first-half results report that market growth in Europe and North America was held back by the impact of disappointing weather on ice cream sales. Unilever’s stock is down 1.34% at time of writing, yet overall these results are better than many analysts expected. Underlying sales were up 3.3% (3.5% in the second quarter), rising a lip-smacking 6.2% in emerging markets.
Underlying operating margins also increased 50 basis points to 19.3%, as underlying earnings per share rose 5% to €1.27, or 3% at constant currency.
Big in Asia
CEO Alan Jope said the FTSE 100 group has delivered consistent growth within its guided range for 2019. “For the full year, we continue to expect underlying sales growth to be in the lower half of our multi-year 3-5% range,” he said, looking forward to another year of strong free cash flow.
China and South East Asia continue to show plenty of momentum, although strong growth in India has now moderated, as expected, while hyperinflation in Argentina is hitting consumer demand. The sale of its Unilever’s spreads business knocked 0.9% off turnover, partially offset by a currency benefit of 1.1%.
Consumer goodie
The Unilever share price has had a storming year, rising 25% in the last six months, as it recovers from last year’s wider market sell-off. Some are concerned that it now looks expensive, as today it trades at 22.2 times earnings.
That’s pricey for most stocks but, in my experience, Unilever typically trades in a range of 21-24x, so this is nothing exorbitant. You simply have to accept paying a premium price for its incredible long-term performance.
Long-term winner
The stock is up 88% over five years and 230% over 10 years, with minimal volatility along the way. Its forecast yield of 3% may be lower than the current FTSE 100 average of 4.3%, but management policy is progressive. In 2014, the dividend was €1.14, by 2018 it had climbed in steady steps to €1.55. That’s a total rise of more than a third in just five years.
This looks set to continue with the next quarterly dividend payable in September up around 6% at €0.4104 per share. It isn’t all smooth sailing for Unilever, with excellent results in its home care division offset by the ice cream-driven slump in food sales. The latter may swiftly improve, given today’s baking heat.
Defensive hero
If the global economy is slowing, as many suspect, that will hit demand for Unilever’s goods. However, as many of its brands are affordable essentials revenues should hold up pretty well. This is a stock for all seasons, one you like to hold both in a recession, and when incomes are rising.
Kevin Godbold reckons it may even be the best share in the FTSE 100, and I can’t think of many better. Today’s results may not be the most exciting, but with City analysts forecasting 8% earnings per share growth in 2019 and 10% next year, Unilever remains a buy, whatever the weather.