Unilever sees consumer backlash worsening on inflation

Representative image (Source: Reuters)

Unilever Plc said that consumers may buy fewer of its products this year as shoppers balk at price increases on items like Dove soap and Hellmann’s mayonnaise.

Volumes will drop in the first half and it’s too early to predict if they might recover in the second, the company said Thursday. Unilever reported its weakest operating margin in at least seven years and forecast a €1.5 billion ($1.6 billion) increase in raw material costs in the first half.

Unilever will keep raising its pricing as it has only passed off three-quarters of its higher costs onto consumers, Chief Executive Officer Alan Jope said in a Bloomberg TV interview.

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“We are now probably past peak inflation, but we’re not yet at peak prices,” he said.

Hein Schumacher, set to replace Jope in July, will be under pressure to boost growth and make the company more efficient. Unilever’s shares have lagged behind those of Nestle SA and Procter & Gamble Co., and activist Nelson Peltz last year joined the board to push for better performance at the stock-cube-to-deodorant conglomerate.

The shares were little changed after the company forecast modest improvement in its 2023 operating margin as raw material costs decline in the second half.

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What Bloomberg Intelligence Says:

BI consumer-products analyst Deborah Aitken said: “Unilever’s 2023 adjusted margin will struggle to meet consensus with downgrades due after its warning of extended price inflation on 1H costs (about €1.5 billion), limited volume erosion and only a modest improvement in this year’s underlying operating margin.”

“That means estimates of a 90-bp expansion to 17 percent look optimistic. Organic sales growth could nevertheless reach the top of the 3-5 percent guidance range. Overall, 2022 results met lowered targets and expectations. A third tranche of the share-buyback plan hasn’t been announced.”

Unilever’s sales volumes dropped 3.6 percent in the fourth quarter, more than double the rate of the first nine months of 2022.

The company said price growth will remain high in the first half and that later it will soften.