Unilever PLC (UL) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance in the U.S. market, growth in India and Indonesia, and improved margins. Despite challenges in Latin America and China, corrective actions and optimistic guidance for H2 are promising. Market share gains, strategic pricing adjustments, and a strong focus on innovation further support a positive outlook. The Q&A section did not reveal significant negative concerns, and management's strategy aligns with market expectations. Overall, the sentiment is positive, with the potential for a 2% to 8% stock price increase over the next two weeks.
Key Financial Performance
Underlying Sales Growth (USG) 3.4% for the first half of 2025, with volumes contributing 1.5% and price 1.9%. This reflects a balance of volume and price growth, driven by input cost inflation and currency movements.
Developed Markets USG 4.3% for the first half, driven by 3.4% volume and 0.9% price. This marks four consecutive quarters of growth around 4%, supported by premium innovations and brand investments.
North America USG 5.4% for the first half, with 3.7% from volume. Growth was driven by portfolio transformation, premium innovations, and increased brand investment.
Europe USG 3.4% for the first half, with 2.8% from volume. Growth was broad-based, supported by premium innovations in Home Care and Ice Cream.
Asia Pacific Africa USG 3.5% for the first half, with 1.9% from volume and 1.6% from price. Growth was led by India and improvements in China and Indonesia.
Latin America USG 0.5% for the first half, with a 4.6% decline in volume. Pricing actions to offset currency movements and subdued market growth impacted performance.
Beauty & Wellbeing USG 3.7% for the first half, driven by 1.7% volume and 2% price. Growth was led by Wellbeing brands and premium innovations.
Personal Care USG 4.8% for the first half, driven by 1.4% volume and 3.3% price. Growth was supported by premium innovations and acquisitions.
Home Care USG 1.3% for the first half, with 1.1% from volume and 0.2% from price. Growth was driven by premium innovations in Europe and Asia.
Foods USG 2.2% for the first half, with 0.3% from volume and 1.9% from price. Growth was led by Hellmann's flavored mayonnaise and Knorr.
Ice Cream USG 5.9% for the first half, with 3.8% from volume and 2% from price. Growth was supported by premium innovations and operational improvements.
Turnover EUR 30.1 billion for the first half, down 3.2% year-on-year due to a negative currency impact of 4% and portfolio changes.
Underlying Operating Margin 19.3% for the first half, down 30 basis points year-on-year due to increased brand and marketing investments.
Free Cash Flow EUR 1.1 billion for the first half, down from EUR 2.2 billion in the prior year due to lower operating profit, Ice Cream separation costs, and higher working capital.
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Operating Highlights
Ice Cream: Strong performance with 5.9% underlying sales growth driven by 3.8% volume and 2% price growth. Magnum Utopia range and Bon Bons snacking format contributed significantly. Ice Cream is set to operate as a stand-alone business post-demerger in November 2025.
Beauty & Wellbeing: 3.7% underlying sales growth driven by 1.7% volume and 2% price. Strong performances from Liquid IV, Nutrafol, and Vaseline. Dove relaunched with fiber repair technology and new packaging.
Personal Care: 4.8% underlying sales growth driven by 1.4% volume and 3.3% price. Dove and Dove Men+Care grew double digits, supported by whole body deodorants. Acquisitions of Wild and Dr. Squatch to strengthen premium and natural segments.
Home Care: 1.3% underlying sales growth driven by 1.1% volume and 0.2% price. Innovations like Wonder Wash and Comfort CrystalFresh technology contributed to growth.
Developed Markets: Strong performance with 4.3% underlying sales growth in the first half, driven by 3.4% volume and 0.9% price. North America grew 5.4%, supported by premium innovations like sugar-free Liquid IV and Hellmann's flavored mayonnaise.
Emerging Markets: Improved performance with 3.5% underlying sales growth in Asia Pacific Africa. India grew 5% in Q2, while China and Indonesia showed signs of recovery. Latin America faced challenges with 0.5% growth due to currency impacts and subdued markets.
Operational Efficiencies: Productivity program ahead of expectations, with EUR 650 million in cumulative savings expected by year-end. Focus on cost-to-serve optimization and advanced productivity models.
Brand Investment: Increased brand and marketing investment to 15.5% of turnover, focusing on Power Brands like Beauty & Wellbeing and Personal Care.
Ice Cream Demerger: Ice Cream business to operate as a stand-alone entity from November 2025. Unilever to retain a 20% stake for up to 5 years.
Portfolio Transformation: Shift towards premium, high-growth segments with acquisitions like Minimalist, Wild, and Dr. Squatch. Sale of non-strategic assets like The Vegetarian Butcher.
Focus on Key Markets: Increased investment in the U.S. and India to drive above-average volume growth. Appointment of new head for India to strengthen market presence.
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Risk or Challenges
Currency Depreciation: The depreciation of the U.S. dollar versus the euro has negatively impacted turnover, with a currency impact of 4% in the first half and an expected 5-6% for the full year.
Emerging Market Challenges: Weak performance in Latin America, particularly in Brazil and Mexico, due to subdued market growth and macroeconomic challenges. Additionally, low single-digit declines in China and Indonesia have been noted, though some recovery is expected.
Input Cost Inflation: Ongoing inflationary pressures from commodities and currency movements, particularly affecting Ice Cream, Personal Care, and operations in Latin America.
Volume Declines in Key Markets: Latin America experienced a 4.6% decline in volume, with Brazil and Mexico showing single-digit declines. Indonesia and China also faced volume challenges.
Competitive Pressures: Competitive pressures in the laundry powders segment in Brazil have impacted Home Care performance.
Regulatory and Separation Costs: Costs associated with the separation of the Ice Cream business and regulatory approvals for retaining a stake in the new entity.
Softness in U.S. Prestige Beauty Market: Prestige Beauty brands like Dermalogica and Paula's Choice have been impacted by softness in the U.S. market.
High Base Effect in Latin America: Growth in Latin America is being compared against a high base from the previous year, making current performance appear weaker.
Supply Chain Resilience Costs: Higher working capital has been allocated to support supply chain resilience during periods of tariff uncertainty.
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Guidance & Outlook
Revenue Growth: Unilever expects underlying sales growth to be within the range of 3% to 5% for 2025, with growth in the second half outpacing the first half.
Operating Margin: The company anticipates an improvement in underlying operating margin for the full year, with second-half margins of at least 18.5%, supported by volume growth leverage, higher productivity, and value chain interventions.
Emerging Markets: Unilever expects further acceleration in emerging markets, particularly in Asia Pacific and Africa, driven by improvements in China and Indonesia and momentum in India.
Developed Markets: Continued outperformance in developed markets, with North America and Europe leading growth through premium innovations and portfolio transformation.
Ice Cream Business Demerger: The demerger of the Ice Cream business will take place in mid-November 2025. Unilever will retain a stake of just below 20% for up to 5 years, with plans to sell the stake gradually.
Currency Impact: If current currency trends persist, the full-year turnover will face a negative impact of 5% to 6%, with a 20 basis point effect on underlying operating margin.
Capital Allocation: Unilever plans to allocate at least 55% of its capital expenditure towards margin-accretive initiatives and expects to achieve approximately EUR 650 million in cumulative savings by year-end 2025.
Free Cash Flow: The company expects free cash flow conversion of around 100% for the full year, with stockholding increases in the first half to be reversed in the second half.
Strategic Focus: Unilever will continue to shift its portfolio towards Beauty & Wellbeing and Personal Care, invest in premium science-based innovation, and focus on operational excellence to drive growth.
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Shareholder Return Plan
Quarterly Interim Dividend: The quarterly interim dividend for the second quarter is up 3% compared to Q2 2024 and is in line with Q1 2025 dividend.
Share Buyback Program: Unilever completed a EUR 1.5 billion share buyback program announced in February, which was concluded at the end of May. Share buybacks contributed 1.5% to earnings in the first half of 2025.
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Key Q&A
Q:Do you expect to see the ex Ice Cream acceleration in volume showing into the ex Ice Cream portfolio in the second half of the year?
A:Yes, we run the business with the intention of delivering volume growth about 2% for our remaining company, and we are confident we will achieve that in the second half. Factors include improved market volume growth, brand superiority scores, increased investments in brands, and a strong innovation plan.
Q:What is the rationale behind the acquisition of Dr. Squatch and other recent M&A activities?
A:The strategy focuses on bolt-on M&A in Beauty and Personal Care and Wellbeing, particularly in the U.S., to build a portfolio of American brands with potential for international growth. Dr. Squatch fits the criteria of being a digitally native, alternative brand with superior functionality and strong digital commerce presence. The acquisition fills gaps in the premium segment in the U.S. for deodorants and skin cleansing.
Q:What is the outlook for Latin America in the second half of the year?
A:Latin America experienced a weak quarter due to strong comparators, economic slowdowns, and high interest rates in Brazil and Mexico. Market volume growth turned negative in Q2. However, corrective actions like pricing adjustments in laundry powders and rolling out successful European Wonder Wash mix are expected to improve competitiveness and performance in the region.
Q:What is the performance outlook for India, Indonesia, and China?
A:India shows strong growth with improved market volumes and investments in core and future formats. Indonesia is recovering with better fundamentals and brand measures, expecting positive volume growth in H2. China remains challenging but is expected to return to growth in H2 due to improved fundamentals and run rates.
Q:What is the performance of the U.S. market, particularly in Personal Care?
A:The U.S. market has shown strong performance with four consecutive quarters of volume growth above 4%. Gains in market share in skin cleansing and deodorants, as well as improvements in the super-premium segment, have been noted. However, there were challenges in Hair Care, which have been addressed by focusing on Power Brands and delisting unprofitable ones.
Q:How is the organizational redesign progressing, and are there any benefits observed?
A:The redesign into top 24 markets and One Unilever markets is complete. Divisionalization of sales forces in top 24 markets has been implemented, though further progress is needed. One Unilever markets have shown strong growth with a smaller organization, becoming accretive in profit and benefiting from category-led innovation.
Q:What is the rationale for retaining a 20% stake in the Ice Cream business post-demerger?
A:The retention of the stake shows confidence in the Ice Cream business as an independent entity. The stake will be reduced in an orderly manner within five years to cover separation costs, tax leakage, and reduce debt.
Q:What is the outlook for margins and investments in the second half of the year?
A:Margins are expected to improve, supported by stable commodity costs, strong procurement savings, and cost discipline. Investments in brands will remain competitive at 15%-16% of revenue. The margin guidance includes Ice Cream, with a mix effect slightly adverse.
Q:What is the strategy for BMI levels and product launches?
A:BMI levels have increased to 15%-16%, providing a competitive advantage. The focus is on fewer but impactful innovations, such as the rollout of Wonder Wash in Home Care across 50 countries by year-end.
Q:What is the market share performance across regions?
A:Market share gains are noted in the U.S., Europe, and India. Latin America shows aggregated share gains over six quarters, despite short-term declines in laundry powders. Southeast Asia is relatively flat, with slight declines in Hair Care.
Q:Are there any categories or markets where pricing adjustments are being made?
A:Yes, pricing adjustments have been made in Laundry Brazil and TRESemmé shampoos in the U.S. to restore competitiveness. In India, price reductions in liquids have stimulated significant volume growth in Home Care.
Q:What is the impact of tariffs on the business?
A:Tariffs have had a manageable impact on costs. Inventory builds were primarily for supply resilience rather than cost concerns. Inventory levels are being optimized.
Q:What is the plan for further disposals to accelerate portfolio shifts?
A:The plan includes EUR 1.5 billion to EUR 2 billion of disposals, focusing on local brands in Europe Foods and laundry in small markets with unsustainable competitive positions. Disposals will be value-protective.
Q:What is the commitment to hard currency EPS growth in 2025?
A:The company is committed to hard currency EPS growth as a strategic priority. If euro-dollar exchange rates remain stable, the aim is to deliver positive hard currency earnings in 2025.
Q:How is the company addressing channel shifts in the U.S., particularly with Amazon and Walmart?
A:The company is investing heavily in key retailers like Amazon and Walmart, focusing on retail media as a source of awareness and recommendation. E-commerce exposure is high, especially in the prestige Wellbeing business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the tax leakage from the Ice Cream spin-off, stating that more information would be shared later in the year. Additionally, while confident in the Ice Cream business's potential, the rationale for retaining a 20% stake was not fully clarified beyond covering separation costs and reducing debt.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Beauty
China
Dove
EUR
Ice Cream
Latin America
Personal Care
Research Division
Srini
Wellbeing
basis point
brand
capital
cost
currency movement
decline
demerger
digit
gain
group
improvement
innovation
investment
margin
market
portfolio
premium
pricing action
sale volume
share buyback
volume price
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