Unilever Reports Strongest Volume Growth Since 2010, Warns of Price Rises

What happened

Unilever posted second-quarter underlying sales growth of 5.8%, beating analyst expectations of 4.3%. The standout metric was volume growth of 5.5%, the company's strongest since 2010, with turnover reaching €13 billion (up 3.8%). Beauty and wellbeing, personal care, and home care divisions all delivered volume growth exceeding 5%, with brands including Dove, Vaseline, Rexona, and Lynx performing strongly. Food volumes declined slightly by 0.1%. Unilever upgraded its full-year underlying sales growth guidance to 4% to 6%, up from the lower end of that range, and now expects approximately 3% volume growth for the year. However, underlying operating profit rose just 0.9% to €5.2 billion, as currency movements and commodity inflation offset sales gains. Free cash flow jumped 42.9% to €1.5 billion, while net debt fell to €26 billion. Marketing spending represented 16.1% of turnover, reflecting increased investment behind brands. Shares climbed more than 7% in Tuesday trading, placing Unilever at the top of the FTSE 100 leaderboard.

Why it matters

The volume growth figure matters more than the revenue beat because it demonstrates genuine consumer demand rather than just pricing power. During recent inflation shocks, many consumer goods companies relied heavily on price increases to protect revenue, which drove shoppers toward private-label alternatives. Unilever's ability to grow volumes while maintaining modest pricing-0.3% price contribution in the quarter-suggests its brands remain strong enough to attract buyers even under cost-of-living pressures. Management indicated that consumers continued choosing Unilever's branded products over cheaper alternatives, demonstrating brand loyalty. However, the company warned that pricing will become a larger growth driver in the second half, as rising commodity costs-linked to higher oil prices since disruptions in tanker traffic through the Strait of Hormuz-land in markets. This creates a critical test: can Unilever maintain volume momentum while passing through price increases? The modest operating profit growth of 0.9% shows margins are under pressure, meaning the company needs consumers to keep buying at higher prices to protect profitability.

Bigger picture

Unilever's results offer insight into broader consumer resilience and the shifting dynamics of the consumer packaged goods sector. The strong volume performance across beauty, personal care, and home care validates CEO Fernando Fernandez's strategy of focusing the portfolio on higher-growth categories while separating slower-growing food operations through the $65 billion McCormick deal, expected to complete by mid-2027. The upgraded guidance and increased marketing investment-reversing years of underinvestment-suggest the turnaround strategy is gaining traction. However, the warning about accelerating pricing in the second half reflects broader inflationary pressures facing consumer goods companies. Rising oil prices and commodity costs remain a sector-wide challenge, and companies are testing how much pricing consumers will accept. UK inflation dropped to 2.6% in June, but economists warn the Bank of England may need to reconsider forecasts if oil prices remain elevated above $90 per barrel, which would pressure food prices through diesel transportation costs. Unilever's performance also highlights differentiation within consumer staples: brands with strong equity in premium categories like beauty are faring better than commodity-like food products, potentially explaining why investors reacted positively despite modest profit growth.

What to watch

Watch whether Unilever can sustain volume growth as it implements higher pricing in the second half. Management expects pricing to contribute more to the 4% to 5% underlying sales growth anticipated for the second half, making consumer response the key variable. Monitor competitor behavior and private-label market share trends to gauge whether shoppers remain loyal to branded products under renewed price pressure. Track oil prices and commodity inflation, particularly if crude remains above $90 per barrel, which could force additional pricing actions and test consumer tolerance. Progress on the McCormick food division separation will signal how committed Unilever is to its beauty and wellbeing focus. Finally, observe whether the profit margin pressure seen this quarter persists, as the 0.9% operating profit growth suggests efficiency gains and pricing aren't yet offsetting cost inflation.