Unilever (UL 3.77%) on Thursday posted surprisingly strong third-quarter earnings results that sent the stock up in the market's initial reaction. The company's growth pace accelerated thanks to solid volume gains across the portfolio and management is now confident that the consumer goods giant will hit the high end of its 2% to 4% full-year sales growth target.
Yet Unilever also warned that the global economy remains sluggish, meaning investors shouldn't expect sharply higher sales in the near future.
Sluggish isn't the word you'd use to describe the just-posted quarterly results, though. Unilever's organic growth was a scorching 5.7% over the last three months, or more than twice the pace it had set during the first half of the year. Better yet, that improvement came from a healthy mix of volume and pricing gains: Volume rose by 4.1% as prices ticked higher by 1.5%. "The strong delivery in the third quarter shows that our focus to build our company for the long term is paying off," CEO Paul Polman said in a press release.
Global rival Procter & Gamble (PG 1.44%), by comparison, managed zero organic growth at its last quarterly showing as volume slipped in four of its five divisions. P&G's latest forecast calls for flat growth again in the upcoming fiscal year -- even as Unilever expects to post as much as a hefty 4% gain in 2015.
The standout performer for Unilever this past quarter was its refreshments business, which managed to grow by 8.5%. That division benefited from a warmer summer season that boosted sales of premium ice cream brands such as Ben & Jerry's and Magnum.
Yet the company can't count on one-off events like unusually good weather to keep powering growth. In fact, management said that the ice cream boost, along with higher prices in Latin America and an easy comparison with prior-year sales in China, combined to lift results above its long-term expected growth pace. After accounting for those special situations, the broader economic picture remains weak. "We continue to see soft global markets with no immediate sign of getting help from an improving global economy," Polman said.
That softness is likely the main reason why Unilever left its 2015 growth guidance unchanged at a range of between 2% to 4% -- even after this quarter's much stronger result. Still, investors may be pleased that the company is performing at least slightly better than management had anticipated, since executives now expect to hit the upper end of that range. And there's no question that Unilever is gaining market share as it is outgrowing rivals like P&G by a significant margin.
Even as it waits for help that may eventually come from an uptick in global demand, Unilever is focused on improving the things over which it has control. For now, that means maximizing profitability through pushing higher-margin products while enacting cost cuts.
It also means working to boost cash flow by efficiently handling inventory across its developed and developing markets. Management has forecast "steady" improvement in both cash flow and operating margin this year. That financial gain, plus the expected operating result of a market-beating 4% sales improvement, had investors bidding up shares of the consumer goods giant.