In a note raising his forecasts for Unilever following its better-than-expected set of first quarter results, Investec Securities analyst Martin Deboo said:“Five quarters into [chief executive] Paul Polman’s reign, Unilever is in the happy position of being able to claim that it is delivering on its promises.
“All the key metrics – sales, margins and cash – are reflecting impressively hockey-sticked profiles.”
It was also likely that Unilever would recover “most (if not quite all) of renewed cost inflation”, he claimed. “It looks as if Unilever is controlling underlying cost inflation in the business much better than in 2007/8.”
Meanwhile, organisational change within Unilever was “continuing apace”, added Deboo, citing the recent appointments of a new chief financial officer, chief information officer, chief legal officer, a new head of categories and a new head of Americas: “The old ‘supertanker’ and ‘resistant to change’ charges are finally looking redundant.”
However, it was clear that Polman’s recovery plan would have to be sales-driven given that Unilever was already generating “decent margins by industry standards”, he said.
'Long and drawn out' recovery
In an investor seminar held last year in the US, Polman pledged to double sales at the €40bn business, although he “was careful not to put a timeframe on it”, noted Panmure Gordon analyst Graham Jones.
However, in a conference call following the first quarter results on April 29, Polman urged caution, suggested that the “tailwind from commodity costs” would “turn into a headwind”.
He also predicted a “prolonged period of stagnation” in some mature markets and a “risk of overheating” in China and India: “You might hear increasingly bullish noises from economic commentators but recognise that for many companies the base is low and that inventory replenishment will have played its part in making current numbers look healthy.
“We continue to think that the recovery will be long and drawn out, and plan the business accordingly."