Unilever shares jump on earnings, but will they gain in the long run?

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Unilever (LSE:ULVR) shares gained 2.5% in morning trading on Tuesday after the company’s most recent earnings report. The firm highlighted its defensive qualities and capacity to pass on costs to consumers. This was seemingly well received by investors, as the share price duly went up.

So let’s take a closer look at the update and see whether Unilever is right for my portfolio.

Recent performance

Unilever lifted its sales forecast on Tuesday, after hiking its prices to offset higher costs and protect margins.

The London-headquartered firm owns brands like Dove, Vaseline, Marmite, and Magnum ice cream. And it lifted its prices by 9.8% in H1, compared to H1 of 2021.

Looking at the second quarter alone, prices were up 11.2%.

As a result, sales revenue grew 8.1% during the first half, but volume fell 1.6%. The company now expects to beat its previous forecast of sales growth between 4.5% and 6.5%. The new guidance on sales growth will be “driven by price”, the company said.

Outlook

So Unilever made more money from selling less products at a time when people around the world are feeling the pinch as inflation rages. What’s not to like from an investor’s point of view?

Well, Charlie Huggins, Head of Equities at Wealth Club, said the performance was “ok” under the circumstances, but claimed it belied the need for change within the business.

Unfortunately, one solid quarter doesn’t change the fact that Unilever is facing some major challenges right now, many self-inflicted“, Huggins commented, suggesting that the business remains too large with over 400 brands and sales in 190 countries.

Its size makes Unilever less “entrepreneurial than smaller competitors“, Huggins argues.

Meanwhile, Mark Crouch, analyst at social investing network eToro, suggested the results were “lacklustre“, highlighting the fall in sales volume. Although, personally, I’d contend increasing revenue and only experiencing a modest fall in volumes at a time when retail sales are falling across the country is fairly positive.

The results also highlight the strength of the brands it owns. Strong brands give companies pricing power and a competitive advantage — both defensive qualities that I like to see amid an economic downturn.

Would I buy Unilever stock?

Despite the above, Unilever has been widely criticised for being too “woke” and not working hard enough for shareholders. The company possesses all the hallmarks of a quality business, but it’s clear that some management issues need to be sorted out.

Terry Smith and Nick Train are two of the UK’s most popular fund managers who recently criticised Unilever for defining the purpose of Hellmann’s mayonnaise, suggesting management “had clearly lost the plot“. But Smith and Train haven’t sold Unilever.

And I’m in the same boat. I already own Unilever stock and I’d buy more at the current price. But I’d like to see the company focus on generating returns over the long run and not other issues.

The post Unilever shares jump on earnings, but will they gain in the long run? appeared first on The Motley Fool UK.

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James Fox owns shares in Unilever. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.