Unilever’s problems mount up, Disney’s earnings boost as visitors return to its parks, and markets await US inflation numbers

“Having been lambasted by investors for caring more about ESG factors than improving the day-to-day business, and then making a punchy takeover bid for GlaxoSmithKline’s consumer healthcare business, Unilever has dusted off its crisis management manual and followed the rule book of how to dig oneself out of a hole,” says Russ Mould, Investment Director at AJ Bell.

“The company says underlying sales growth is at a nine-year high, it has successfully sold the non-core tea business, there are more share buybacks, and – perhaps most interesting – there are promises not to chase big deals for now.

“But are these results really cause for celebration? First, a big chunk of its sales growth has come from putting up prices which every product manufacturer seems to be doing. Volume growth paints a different story with a mere 1.6% gain – that’s not good when you consider Unilever is meant to own some of the world’s most prized brands. Are these names less relevant to shoppers in a world with increased choice?

“Profit margins are under pressure which is a big worry. Again, Unilever’s brands are meant to be world-class, so if a company with its assets cannot defend margins, something is very wrong.

“Then there is the issue of Unilever’s future priorities. It wants to focus more on health, beauty and hygiene than food and drink, yet this could be a big mistake. The food and drink division is the strongest growing part of the business so why would the company lose interest in its best player?

“A month ago, it said major acquisitions should be accompanied by the sale of lower growth brands and businesses. That’s confusing logic given that its lower growth divisions are where it wants to focus.

“All this would suggest Unilever has got itself tied in knots and the shareholder backlash means the clock is ticking for chief executive Alan Jope to properly decide on a long-term strategy to generate sustainable growth otherwise he will be out of a job very soon.”

Walt Disney

“Walt Disney’s latest earnings are sprinkled with a bit of stardust as the company gets its streaming growth back on track and benefits from a return to its parks as pandemic-related restrictions are eased.

“This is a special business, almost certainly the world’s leading entertainment brand with closing on a century of heritage, and it is highly adept at reinventing itself to adapt to shifting consumer tastes.

“Just look at its latest release Encanto, which features its first high profile Latino creations and whose musical numbers are proving so popular that We Don’t Talk About Bruno became the first Disney original composition to hit number one in the UK charts.

“The relationship between its leading content, including Disney animations, Pixar, Star Wars and Marvel, and its resorts is a symbiotic one. The ability for people to interact with their favourite characters and worlds helps underpin their resonance as well as acting as a huge draw to get people through the gates and to get them spending plenty on merchandise too.

“The return of domestic visitor levels to pre-pandemic levels is testament to this appeal and its foreign venues, currently lagging behind, are likely to play catch up as more Covid measures are eased.

“Not everything is rosy in the house of mouse; cinematic releases are yet to get back to pre-pandemic levels of performance and Disney’s advance in China has stalled with two films it would have expected to do well in that market – the live-action version of Mulan and Marvel release Shang-Chi and the Legend of the Ten Rings underperforming.

“Disney may have room to grow on the streaming subscription front but at some point it will hit saturation point. Like all the established streaming services, it doesn’t really get any added benefit based on how much people use the platform. Though it could expand its practice of charging a premium for subscribers to see its latest releases first.”

Markets

“Better than expected results from AstraZeneca and another good showing from the miners helped to prop up the FTSE 100 but disappointment over results from Unilever and Relx meant that the UK index struggled to make much headway.

“Overall, the FTSE 100 only managed to creep ahead by 0.2% to 7,657, lagging other parts of Europe including a 0.5% gain from Germany’s Dax index.

“The key event on today’s calendar is US inflation figures and these may not be pretty. The data is incredibly important to the Federal Reserve’s thinking on how fast interest rates will need to go up, and so the numbers are likely to move markets, particularly if the cost of living is going up fast.

“The market is also watching oil prices like a hawk, with the black stuff going up another 0.3% to $91.83 per barrel. High energy prices are a key factor behind rising inflation, and they are causing all sorts of problems for businesses and consumers.”

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