UL Unilever PLC

By Saabira Chaudhuri 

LONDON-- Unilever PLC Thursday said its profit rose 2% for the first half of the year, even as revenue slipped on currency volatility, as the consumer goods giant's focus on controlling costs paid off.

The maker of Magnum ice cream, Dove soap and Axe deodorant posted a first-half net profit of EUR2.51 billion ($2.77 billion), up from the EUR2.49 billion in the corresponding period a year earlier, while revenue fell 2.6% to EUR26.3 billion as a result of unfavorable currency movements.

The Anglo-Dutch consumer goods company has been working to mitigate the impact of a turbulent macroeconomic environment by raising prices and releasing premium versions of its products. The company has also adopted so-called "zero-base budgeting" or justifying each year's expenses from scratch to rein in costs.

Underlying sales--which strip out the impact of acquisitions, disposals and currency movements--grew 4.7%, which was better than the 2.9% that Unilever logged for the same period last year.

RBC analyst James Edwardes Jones described the results as "solid," while Exane BNP Paribas analysts said it was "a good quarter."

Chief Executive Paul Polman said he sees no sign of improvement in the global economy, but underscored that Unilever's long-term focus had helped it withstand a period of "high volatility and accelerating change."

The results show that Unilever continues to struggle with a soft environment in both North America and Europe, as well as in its spreads business, although the company is benefiting from its slant toward emerging markets.

Sales in emerging markets, where Unilever does the majority of its business, grew 8% on an underlying basis, up from the 6% growth the company reported last year.

In North America, Unilever's sales edged up 0.7% on an underlying basis, while in Europe sales climbed just 0.1%.

The personal care arm--Unilever's largest--saw sales growth of 5.7% on an underlying basis, amid increases in both volume and price. Volumes in the food business declined but Unilever offset those by raising prices, translating into underlying sales growth of 2.3%. Home-care and refreshment--which includes tea and ice cream--reported underlying sales growth of 6.5% and 4.1%, respectively.

Unilever's spreads division--which the company houses as a separate unit with its own budget and management--continued to struggle, posting a mid-single digit percentage decline in the first half. Analysts have repeatedly called on Unilever to sell its spreads business, which despite being highly cash-generative is a drag on overall sales. "There's no real change in the trajectory," said Chief Financial Officer Graeme Pitkethly in a Thursday interview, commenting on spreads.

Home-care and refreshment--which includes tea and ice cream--reported underlying sales growth of 6.5% and 4.1%, respectively. Unilever's tea business has been hit by declines in oil-price sensitive areas like the Gulf states and Russia, from which it has historically received much of its revenue. Thursday, Mr. Pitkethly said the tea business logged low-to-mid-single digit growth in the first half of the year.

Overall, Unilever has been taking incremental steps to shift its product portfolio away from slower-growing food sales and toward higher-margin personal care products and last year reclassified on the S&P and MSCI indexes from packaged food to personal products.

On Wednesday, the company said it had agreed to buy subscription razor company Dollar Shave Club, giving it a foothold in the U.S. market for razors as well as access to more customer data. That deal, for a reported $1 billion, is expected to close in the third quarter.

Mr. Pithkethly said Unilever plans to learn from Dollar Shave Club's subscription model--through which it sends disposable razors and other grooming products to its 3.2 million members for a flat monthly fee--and eventually will use this for other products like laundry and household care, bespoke prestige products and heavy items.

"We think this gives us a real step change to build that capability," he said of the acquisition. "There's a move from big box to little box that goes through your letter box."

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

July 21, 2016 03:25 ET (07:25 GMT)

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