Anglo-Dutch consumer products giant Unilever Plc, which fended off an unsolicited takeover offer in 2017, on Feb. 1 reported 2017 net profit ahead of expectations, while its CEO predicted growth in sales and profit margins in 2018.
The London-based company, whose products include Ben & Jerry's ice creams and Dove soaps, reported that net profit for the year ended Dec. 31, 2017, increased 16.8% at current exchange rates to €6.05 billion from €5.18 billion in 2016, beating the S&P Capital IQ consensus estimate of €5.83 billion.
Diluted earnings per share jumped 18.4% to €2.15 from €1.82, outpacing the consensus of €2.07. But revenue fell short of the estimate of €53.82 billion, adding 1.9% to reach €53.72 billion from €52.71 billion.
During 2017, Unilever stepped up delivery from its savings program, which contributed €2 billion toward its goal of €6 billion in savings by 2020. Its performance during the year was aided by the continued transformation of its portfolio with 11 acquisitions, along with the disposal of its spreads business to KKR & Co. LP in a €6.83 billion deal announced in December 2017.
The company also implemented a plan to improve its margin and to return more cash to shareholders in the wake of an aborted $143 billion bid from Kraft Heinz Intermediate Corp. II.
"This puts us well on track to deliver towards the strategic objectives set out for 2020 and demonstrates the progress we have made in transforming Unilever into a more resilient and more agile business," CEO Paul Polman said in a statement.
"Our priorities for 2018 are to grow volumes ahead of our markets, maintain strong delivery from our savings programs and to complete the integration of foods & refreshment as well as the exit from spreads. We expect this will translate into another year of underlying sales growth in the 3% to 5% range, and an improvement in underlying operating margin and cash flow, that keeps us on track for the 2020 targets."
In the fourth quarter ended Dec. 31, 2017, underlying sales growth was 4%, or 4.3% after the spreads business was stripped out.
For the full year, underlying sales growth in emerging markets was 5.9%, fueled by strong demand for ice creams, cooking products and fabric conditioners. Performance in India was particularly strong, with volume increased after the implementation of a new goods and services tax saw lower prices passed on to consumers. Growth in China picked up due to expanding e-commerce sales and new product launches.
Meanwhile, underlying sales in developed markets shrank 0.6% due to weakness in the North American market. In Europe, subdued volume growth and continued price deflation in several countries led to a "modest" decline.
Operating profit increased 13.5% year over year to €8.86 billion from €7.80 billion, while underlying operating margin rose 110 basis points to 17.5% from 16.4%. Unilever is targeting an underlying operating margin of 20% by 2020.
Net debt increased to €20.3 billion at the end of the year from €12.6 billion 12 months earlier, largely due to the cost of acquisitions and a €5 billion share buyback program.
"Overall, we consider this a quality performance in the first FY reporting since the Kraft-Heinz approach in February," analysts at Bernstein Research wrote in a Feb. 1 note.
In mid-morning trading in London on Feb. 1, Unilever's shares were down 0.3% at £39.89.
