High inflation eats into Unilever’s Q2 profits forcing CPG giant to lower full-year profit guidance

UK – Consumer goods giant Unilever is the latest causality of rising costs of raw materials, packaging and transport which have eaten into the company’s Quarter 2 profits and forced it to lower its full year guidance.

Despite Unilever reporting an underlying sales growth of 5.4%, high inflation resulted in the company’s underlying operating margin in the six months to June dropping 100 basis points from a year earlier to 18.8 percent. 

The company further noted that additional investment in its brands had also weighed on margins pushing net profits to €3.4bn (US$4.01bn), from €3.5bn (US$4.13bn) that was achieved in 2020. 

Unilever’s overall turnover however went up slightly to €25.8bn buoyed by a sales growth of 1.3 percent and higher sales volumes for its products, which range from detergent to Ice cream, mayonnaise, and tea. 

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As a result of the high inflation, the maker of Hellmann’s mayonnaise and Magnum ice cream has lowered its guidance for profitability forecasting 2021 margins near last year’s level as improvement becomes more difficult. 

Unilever joins a number of consumer goods companies such as Conagra Brands and PepsiCo in warning of rising price pressure as a result of high costs of production.  

More expensive crude oil, palm oil, and U.S. freight costs are forcing the U.K. consumer-goods maker to raise prices on ice cream and other products, though the company has to move slowly to avoid shocking shoppers, Unilever Chief Financial Officer Graeme Pitkethly said. 

In the Q2 financial statement, Unilever revealed that the operational separation of its tea business is substantially complete and is due to conclude in October 2021.  

This business generated revenues of around €2 billion in 2020 and excludes Unilever’s hot tea businesses in India and Indonesia and its partnership interests in ready-to-drink tea. 

“We are now focused on the next phase for this business, which we expect to be either an IPO, sale or partnership,” Unilever said. 

Colman’s dry meal maker and sausage range get sustainable packaging

Meanwhile, Unilever’s Colman’s dry Meal Maker and Sauces range will start being packaged in a new paper-based, aluminum-free packaging material made by British packaging manufacturer Mondi. 

The new packaging solution is comprised of a paper content of 85% and an ultra-thin functional plastic layer that seals the packaging and provides barrier protection for the food. 

Mondi and Unilever’s R&D teams identified this layer as the minimum acceptable protection needed to ensure a long shelf life while maintaining quality and reducing food waste. 

According to the company, the new material can be recycled in existing paper waste streams making it an ideal alternative to the old unrecyclable multi-material laminate. 

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