Unilever Earnings: In-Line Results With Positive Volumes and Beauty Segment Ahead

Unilever's fourth-quarter and full-year 2023 results showed underlying sales growth of 4.7% and 7%, respectively, in line with company-compiled consensus and our estimates. In the fourth quarter, as expected, growth was propelled by volumes and price increases, with volumes up 1.8%, driven in turn by beauty's strong outperformance, up 6.3% versus 3.5% in our model, the result of higher marketing and overhead investments. Margins improved by 60 basis points during the year with the gross margin up 200 basis points and increased investments in 30 power brands (75% of sales) consuming 130 basis points, in line with its new strategy. This was highly anticipated and heavy in the second half as lower raw materials inflation enabled the group to reinvest a big chunk of gross margin gains into marketing to reinvigorate volumes. Management introduced fiscal 2024 organic growth guidance of 3%-5% versus 3.6% for consensus (prerelease), and 4% (unchanged) in our model. On profitability, Unilever expects a modest improvement for the full year, up 24 basis points in our model and lower than company-compiled consensus of 40 basis points. All in all, it was a good close to the year with fourth-quarter volumes that grew across the board except for Europe and ice cream due to higher elasticities and consumer downtrading to value formats as well as less favorable summer weather versus 2022. Core categories performed well; both beauty and wellbeing, and personal care grew volumes in Europe, despite widespread consumer downtrading across several categories, which reflected robust elasticities and brand strength. Given the in-line growth number and guidance for the full year, our fair value estimate for Unilever is unchanged at EUR 52/USD 56/GBX 4,560, with minor adjustments for currency movements. Shares are undervalued.