Unilever Q1: Aggressive M&A Paying Off; Oral Care Cited As Space To ‘Watch’

Anglo-Dutch firm’s prestige business, created in recent years through acquisitions such as Hourglass, Dermalogica and Kate Sommerville, grew by double digits in the first quarter. Oral care declined, but CEO Alan Jope is optimistic about the segment’s future.

Unilever’s 29 acquisitions since 2015 are growing at a double-digit aggregate rate, providing momentum in the company’s fiscal 2019 first quarter that it expects to continue through the balance of the year.

“Bolt-on acquisitions are quite fundamental to transforming our portfolio more quickly into faster-growth spaces,” Chief Financial Officer Graeme Pitkethly noted during the firm’s April 18 call with analysts to discuss Q1 results.

Unilever’s 29 deals in the past four years, including 11 in 2017, represent €2.6bn in acquired turnover. (Also see "Unilever's Response To 'Tectonic Shifts': Unprecedented M&A, Innovation" - HBW Insight, 5 Feb, 2018.)

Roughly $500m of that can be found in the firm’s new prestige business, consisting of brands such as Hourglass, Dermalogica, Kate Somerville, Murad and REN.

Emerging markets continue to drive Unilever’s overall results, particularly in Asia where emerging middle-class consumers have demonstrated a readiness to shell out for higher-priced beauty products. (Also see "L’Oreal Luxe Not Losing Steam In Asia; Consumer Biz Lifts On Garnier Momentum" - HBW Insight, 23 Apr, 2019.)

The Anglo-Dutch firm posted underlying sales growth of 3.1% to €12.4bn ($13.8bn) in the first quarter, with 1.2% attributed to volume increases and 1.9% to pricing.

Emerging markets accounted for €7.6bn, up 5% in underlying terms.

Developed markets remained sluggish, inching up 0.3% to €4.8bn, according to Unilever’s release.

“We've got lots of naturals brands in our portfolio that lend themselves perfectly well to extension into oral care.” – CEO Jope

On a category basis, skin care and deodorants were outstanding performers, while skin-cleansing and hair-care growth was more modest.

Unilever leadership highlighted local innovations that are winning with consumers, including St. Ives face mists, an on-trend new format available to US consumers, and Pond’s clay cleansers in Southeast Asia.

The firm’s oral-care business declined in the first quarter. CEO Alan Jope explained that oral care is an unusual category as it’s currently not a global business for Unilever.

Rather, Unilever commands strong market share in six to eight countries.

He acknowledged that the firm has been slower than local players to capitalize on rising trends in oral care, including increased interest in natural products.

However, Jope urged analysts to “watch this space,” stating, “We intend on continuing to be a strong player in oral care, leveraging the massive leadership positions that we have in important markets for the future like Indonesia, Vietnam, Indonesia, Brazil, parts of Africa, [such as] Nigeria, and our leadership position that we have in France.”

Unilever picked up pharmacy toothpaste brands Fluocaril and Parogencyl from Procter & Gamble Co. in a deal announced April 12, which should strengthen its oral-care game in France and Spain in particular. (Also see "Unilever Grows European Portfolio, P&G Trims More Brands In Toothpaste Deal" - HBW Insight, 15 Apr, 2019.)

Unilever also will look to boost its oral-care business from within, Jope suggested.

“We've got lots of naturals brands in our portfolio that lend themselves perfectly well to extension into oral care,” he said.

Unilever’s Beauty and Personal Care unit recorded €5.2bn in Q1 revenue, reflecting an underlying increase of 3.1%.

The firm is projecting underlying sales growth of 3% to 5% for the full year.