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Cost pressures weigh on Unilever’s margin guidance

Unilever’s underlying sales rose by 5% during the quarter ending in June

Unilever surpassed its expectations on Thursday with its Q2 sales growth which was helped by rising prices and its sales of ice-cream and teas.

However, the soaring price of commodities could narrow its operating margin at the end of the year.

This was reflected by investors this morning as the Unilever share price dropped by 4.34% in early trading.

The FTSE 100 company’s underlying sales rose by 5% during the quarter ending in June, 0.2% above analysts expectations.

Having previously expected an increase, Unilever is now expecting its operating profit margins to be flat for 2021.

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Chris Beckett, head of equity research at Quilter Cheviot, gave further context to the news:

“Unilever’s sales growth matched market expectations, while earnings growth exceeded market expectations due to low tax and interest payments. Underlying sales grew 5% in the quarter with slowing volumes (+3%) being supported by accelerated pricing (+2%),” said Beckett.

“All product categories broadly matched market expectations with the strongest growth being recorded in Foods & Refreshment which benefited from increased European ice cream sales. Asian and emerging markets were top performing regions for Unilever, led by double digit performance in China and South Asia.”

“Of concern, however, is the reduction in operating margins and lowering of the full year margin guidance as a result of cost increases. These result from higher input costs across the supply chain affecting a number of product lines. Operating margins should now only be maintained – whereas Unilever previously expected a slight improvement.”

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