Unilever Buoyed by Higher Prices but Loses Some Shoppers

The earnings come as consumer-goods companies walk a tightrope in deciding how much to lift the prices of their products to offset rising costs without propelling shoppers to defect to cheaper store brands amid rising inflation. On Monday,

Walmart Inc.

warned that higher prices for food and fuel were causing consumers to pull back.

“We are pricing ahead of the market, and we’re prepared to tolerate low-single-digit volume declines and some compromise on competitiveness for a limited period of time in order to land that price,” said Unilever Chief Executive

Alan Jope.

He added that the company expects volumes to fall further in the second half of the year as prices rise.

Unilever, whose brands also include Ben & Jerry’s ice cream and Hellmann’s mayonnaise, faces the additional challenge of being under pressure to boost growth, with analysts saying it has underperformed some rivals during the pandemic. Unilever this year added

Nelson Peltz

to its board after the activist investor’s Trian Fund Management LP took a 1.5% stake. The company has also launched a restructuring intended to increase accountability and speed up decision making.

On Tuesday, Unilever said it expected higher selling prices to push full-year sales growth above the top end of the 4.5%-to-6.5% range it previously gave investors. However, the company left its margin guidance unchanged, saying it needs to invest in brands amid soaring inflation. Unilever’s shares rose 2.5% in early trading in London.

Private-label store brands have gained ground in European countries like Spain, Italy, the U.K., Germany and the Netherlands across food, ice cream and household cleaning products, and in the U.S. across food and ice cream, Chief Financial Officer

Graeme Pitkethly

said on a call with reporters. That reverses a trend seen during the pandemic, when big brands took market share.

While Unilever in the U.S. has been able to raise prices on premium ice-cream brands like Ben & Jerry’s, Talenti and Magnum, much of its portfolio sits in mass-market brands like Breyers, Good Humor, Klondike and Popsicle that compete with private-label products, and it is there where Unilever has lost share, said Mr. Pitkethly.

Summer is peak ice-cream season for Unilever but this year the company has struggled with supply-chain issues in the U.S. amid a shift by consumers from in-home to out-of-home consumption. Unilever said the issues are particularly affecting Ben & Jerry’s and have continued in the third quarter. While in-home ice cream sales were up slightly globally, Unilever said volumes declined in both North America and Europe.

The company is also facing diminishing consumer confidence in China, where a Covid-19 resurgence has hamstrung economic growth, said Mr. Pitkethly. In North America, the company is struggling with a big labor shortage, which he described as “a real battle for talent.”

Although the prices of some key commodities like palm and crude oil have eased lately, Unilever left its inflation and margin forecasts for the year unchanged, saying prices of other commodities like natural gas and kerosene distillates are higher. “We expect peak inflation to come in the second half of the year,” Mr. Pitkethly said.

He added that Unilever’s price rises are lagging behind cost increases, with the company about 70% to 75% covered by the end of the first half.

Unilever said it raised prices more in the second quarter than it did in the first, leading to volume declines that were particularly pronounced for its home-care unit, which is especially exposed to rising input costs. Volumes of household cleaners also dropped as consumers cleaned less as Covid-19 ebbs.

Underlying sales grew 12% for home care while Unilever’s beauty and personal-care unit’s sales rose 8%. Foods and refreshments grew 8.1%. In all three categories, sharp price rises led to volume declines.

The company didn’t disclose profit figures for the second quarter but did say net profit dropped 6.9% to 2.91 billion euros, equivalent to about $2.97 billion, for the first six months of the year, driven partly by higher finance costs.

Write to Saabira Chaudhuri at [email protected]

The earnings come as consumer-goods companies walk a tightrope in deciding how much to lift the prices of their products to offset rising costs without propelling shoppers to defect to cheaper store brands amid rising inflation. On Monday,

Walmart Inc.

warned that higher prices for food and fuel were causing consumers to pull back.

“We are pricing ahead of the market, and we’re prepared to tolerate low-single-digit volume declines and some compromise on competitiveness for a limited period of time in order to land that price,” said Unilever Chief Executive

Alan Jope.

He added that the company expects volumes to fall further in the second half of the year as prices rise.

Unilever, whose brands also include Ben & Jerry’s ice cream and Hellmann’s mayonnaise, faces the additional challenge of being under pressure to boost growth, with analysts saying it has underperformed some rivals during the pandemic. Unilever this year added

Nelson Peltz

to its board after the activist investor’s Trian Fund Management LP took a 1.5% stake. The company has also launched a restructuring intended to increase accountability and speed up decision making.

On Tuesday, Unilever said it expected higher selling prices to push full-year sales growth above the top end of the 4.5%-to-6.5% range it previously gave investors. However, the company left its margin guidance unchanged, saying it needs to invest in brands amid soaring inflation. Unilever’s shares rose 2.5% in early trading in London.

Private-label store brands have gained ground in European countries like Spain, Italy, the U.K., Germany and the Netherlands across food, ice cream and household cleaning products, and in the U.S. across food and ice cream, Chief Financial Officer

Graeme Pitkethly

said on a call with reporters. That reverses a trend seen during the pandemic, when big brands took market share.

While Unilever in the U.S. has been able to raise prices on premium ice-cream brands like Ben & Jerry’s, Talenti and Magnum, much of its portfolio sits in mass-market brands like Breyers, Good Humor, Klondike and Popsicle that compete with private-label products, and it is there where Unilever has lost share, said Mr. Pitkethly.

Summer is peak ice-cream season for Unilever but this year the company has struggled with supply-chain issues in the U.S. amid a shift by consumers from in-home to out-of-home consumption. Unilever said the issues are particularly affecting Ben & Jerry’s and have continued in the third quarter. While in-home ice cream sales were up slightly globally, Unilever said volumes declined in both North America and Europe.

The company is also facing diminishing consumer confidence in China, where a Covid-19 resurgence has hamstrung economic growth, said Mr. Pitkethly. In North America, the company is struggling with a big labor shortage, which he described as “a real battle for talent.”

Although the prices of some key commodities like palm and crude oil have eased lately, Unilever left its inflation and margin forecasts for the year unchanged, saying prices of other commodities like natural gas and kerosene distillates are higher. “We expect peak inflation to come in the second half of the year,” Mr. Pitkethly said.

He added that Unilever’s price rises are lagging behind cost increases, with the company about 70% to 75% covered by the end of the first half.

Unilever said it raised prices more in the second quarter than it did in the first, leading to volume declines that were particularly pronounced for its home-care unit, which is especially exposed to rising input costs. Volumes of household cleaners also dropped as consumers cleaned less as Covid-19 ebbs.

Underlying sales grew 12% for home care while Unilever’s beauty and personal-care unit’s sales rose 8%. Foods and refreshments grew 8.1%. In all three categories, sharp price rises led to volume declines.

The company didn’t disclose profit figures for the second quarter but did say net profit dropped 6.9% to 2.91 billion euros, equivalent to about $2.97 billion, for the first six months of the year, driven partly by higher finance costs.

Write to Saabira Chaudhuri at [email protected]