Unilever shares embrace inflationary pressures

Unilever shares jumped one Thursday after the group released third quarter figures that pointed to a 4% increase in turnover to €13.5bn.

Unilever’s revenue growth was combination of underlying sales growth of 2.5% and increasing prices of products.

The group said it had to increase prices in some regions to combat the impact of rising input costs.

Nonetheless, investors cheered the trading statement and Unilever shares rose 2.4% on Thursday morning.

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“Unilever reckons inflation is here to stay. That’s bad news not just for investors in the consumer goods giant but also for central bankers,” AJ Bell financial analyst Danni Hewson.

“The like of the Federal Reserve will have been hoping inflationary pressures would ease sooner rather than later as they walk the tightrope of keeping prices from overheating while not choking off the recovery by raising interest rates too far and too fast.

“However, given the breadth of costs Unilever is exposed to and the fact that dealing with input costs is bread and butter for a consumer goods company, a warning that inflation will be higher in 2022 carries weight.”

Analyst Danni Hewson also highlighted the impact rising costs and rising prices would have on margins, in that there would be little change in the coming year.

“For now Unilever hopes price increases, running at the highest rate in years, will keep margins flat year on year but the company faces its own balancing act of not increasing prices so much that its products are no longer competitive. It is a real test of the strength of the company’s brands,” Hewson said.

Dividends

Investors would have also been happy to see sales figures that posed no threat to the resilience of Unilever dividend that had been maintained throughout COVID-19 restrictions.

“All too easily overlooked is the group’s dividend. Unilever declared a quarterly pay-out of 35.98p per share for the quarter. The group paid dividends throughout the pandemic, demonstrating the sheer strength of the business, which comes from selling millions upon millions of everyday products to consumers all around the world, each and every day,” said Steve Clayton, HL Select fund manager.

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