Unilever reveals profit margin hit amid rising commodity prices

Consumer goods giant Unilever has cut its profit margin outlook as it became the latest firm to warn over the impact of rising global commodity prices.

The Marmite-to-Dove soap firm said it had seen cost inflation pressure through its second quarter, which is forcing it to hike prices for a number of products in some regions.

Unilever now expects underlying operating profit margins to be around flat for 2021, having previously forecast a slight increase.

Global supply chains are being strained by surging demand and logistics woes amid the pandemic, which is driving up prices for many products, from ingredients to building materials.

Drinks mixer business Fever-Tree cautioned earlier this week it expects a hit to profits from rising costs amid logistics woes.

Shares in Unilever fell 5% as the margin alert overshadowed a better-than-expected 5.4% rise in half-year underlying sales, which was also ahead of the group’s target for for 3% to 5% growth.

The group’s interim results also showed pre-tax profits fell 3.6% to 4.37 billion euros (£3.8 billion).

Alan Jope, chief executive of Unilever, said: “Competitive growth is our priority, and we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3% to 5%, despite more challenging comparators in the second half.”

He added: “Cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes.

“We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat.”

Underlying sales growth was 5% in its second quarter, of which 1.6% was down to price increases, which it said “accelerated through the quarter”.

Across Europe, the group said ice-cream sales enjoyed doubled digit sales as restrictions began to ease, though it said sales have not yet returned to pre-pandemic levels.

European underlying sales lifted 1.1% in the first half, though it said UK sales fell as it came up against strong growth from a year earlier.

The figures come amid a backlash against Unilever’s Ben & Jerry’s brand in Israel after the US ice-cream business moved to end sales in occupied Palestinian territories.

Israel’s prime minister Naftali Bennett has warned Unilever that it will stake “strong action” against the boycott.

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said cost inflation was a “fly in the ointment, and one largely out of Unilever’s control”.

“Ultimately, it’s possible we’re in for a run of margin stagnation, which isn’t the end of the world, but it is disappointing, and will put a lid on profit growth,” she said.