Unilever: Better Guidance and Solid Q1 Volume Beat Aided by Deodorant One-Off

Unilever reported strong sales growth in its first-quarter trading update at 10.5%—well ahead of company-compiled consensus of 7.2%, with volumes driving the beat (volumes down 0.2% versus down 3.2% for consensus). Management upgraded guidance to the upper end of its 3%-5% medium term range versus "upper-half" previously. This compares with 4.7% in our model and around 5% for consensus. Better volume performance was largely driven by pipeline fill from retailers ahead of the summer season in the deodorant category. On the call, management said that had it not been for this "restocking" boost, group volumes would have been between minus 1% and minus 2%, a resilient performance that is still ahead of expectations. From a product category perspective, beauty & wellbeing was the standout performer given resilient volumes up 2.6% and organic growth up 9.6% with personal care a close number two, at similar organic growth rates and solid volumes (about flat if one accounts for the pipeline fill one-off in deodorants). Ice cream exhibited the worst performance in volumes, as expected, given the category's discretionary nature, with pricing (up 10.5%) taking a toll on volumes (down 4.1%). Similarly but at a lesser extent, home care and nutrition reported negative volumes (down 2.8% and 1.3%, respectively) as pricing (up 13.4% in both categories) put the consumer, especially in Europe, under pressure, with management commenting on trading-down activity to lower-priced products and private label gaining share in these categories. All in all, a strong trading update, even adjusting for the deodorant pipeline refill one-off, with volumes improving sequentially (adjusted volumes down 1% to 2% versus down 3.6% in the fourth quarter). We remain cautious as some of Unilever's categories are experiencing increased competition from private label and down-trading activities. We don't expect to materially change our EUR 50/$55/GBX 4,430 fair value estimates. Shares are fairly valued.