Unilever became the loser

The consumer goods giant Unilever beat expectations with their numbers… but they turned out to be the loser yesterday in London.

Are their numbers alright?

Well… Unilever’s numbers are still good, with both revenue and profit beating analysts’ projections.

  • We love ice cream in summer. 🍦 Food and Refreshment division led the growth, driven by the strong consumption of ice cream and tea, as summer is coming.
  • A possible tea IPO? Unilever’s tea business is either likely to be sold, or split and listed, as they wish to offload some non-core businesses.

While all of those look promising, trouble hits costs and margins. In the first half, Unilever’s operating margin dropped 100 bps, meaning… they were hurt by the rising costs. 

Can you explain more? How does the margin work?

“We are facing very material cost increases”, said the chief executive. That’s mostly from the rising inflation and commodity prices since the pandemic began.

  • Translate into easy words: higher inflation/commodity prices = higher costs = lower margins = bad for profits.
  • Can’t feel? Cost of palm oil, the raw material of shampoo and laundry detergent, rose 70% in one year. Ocean freight costs also rose 50%.

Any solutions? The direct way would be to hike the price and pass the cost to us 🙃 Or alternatively they could choose to offer less discounts and make the bottle size smaller.

Investors do care about this: Unilever’s share price dropped nearly 7% yesterday on inflation fears and squeezing margins. This made them one of the biggest losers 👎 in London’s FTSE 100 yesterday.

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