Best Volume Quarter Since 2010, and the Gross Margin Promise Management Quietly Dropped

Results vs. Consensus

Unilever is scored against a company-compiled consensus for underlying sales growth rather than a Street EPS number, and on that measure the second quarter was the largest beat the group has delivered in the post-demerger era. The half-year print behind it is more mixed, because the operating engine and the reported profit and loss account continue to tell different stories.

Second-Quarter Scorecard

Turnover growth of 3.8% is the first positive reported top line since the demerger re-based the group, and it is worth separating into its parts: underlying sales added 5.8%, acquisitions net of disposals added 0.6%, and currency subtracted 2.4%. Because those components compound rather than sum, the reported outcome lands at 3.8%.

First-Half Profit and Loss

Both EPS percentage changes are computed on unrounded earnings and share counts as filed, which is why they differ slightly from the change implied by the rounded euro figures shown. Prior-period gross margin and brand and marketing investment are the stated current-period figures adjusted by the stated basis-point movements. All 2025 comparatives are re-presented for the December 2025 Ice Cream demerger and are not the figures originally published in July 2025.

The Quarterly Sequence

The most useful table in this print is not a comparison to consensus. It is the last three quarters laid side by side, because it shows a business swapping price for volume at a speed almost nothing else in staples has managed.

Q1 2026 turnover is the first-half figure less the disclosed second quarter, which reconciles to the €12.6bn the company reported on 30 April 2026.

Revenue

The reason to take this quarter seriously is that it does not depend on a comparative. Management put the group's turnover-weighted market volume growth at around 1.5%, against its own 4.2% first-half volume, and the share evidence corroborates the gap: India reached its highest ever market shares in both Home Care and hair care, the United States reclaimed deodorant leadership after two years, and Home Care gained share across all three of its categories. The two-year average volume of 2.7% for the half and the roughly 3% average over the last four quarters say this is a trend with a strong quarter on top of it rather than a single quarter dressed up as a trend.

"We see the turnover weighted market volume growth at around 1.5%, the growth at which Unilever is exposed."
— Fernando Fernandez, CEO

Assessment: This is the quarter that answers the question February's note said would decide the rating. The bear case then was that the fourth quarter's 4.2% leaned on a non-repeating Indonesian comparative and that emerging markets would need to average around 5.4% for the year to hold the range. Emerging markets delivered 7.0% in the half and 8.3% in the second quarter. The bear case was wrong, and it was wrong for the right reason to change a rating: the growth came from share, not from the base.

Margins

In February the chief financial officer committed to gross margin expansion in 2026 exceeding 2025's 20bps. The first half delivered a 70bps decline, and the second-half guide is not recovery but stability at the same 46.8%. The attribution is credible enough: commodity inflation traced to the Middle East conflict, deliberately calibrated pricing, adverse mix from an outsized Home Care contribution, and planned World Cup promotions. It is still a commitment that was made and then not met, and the report should say so plainly rather than let the 10bps of underlying margin expansion paper over it.

"on a year-on-year basis, gross margins declined by 70 basis points, given inflation headwinds arising from Middle East conflict and a calibrated approach to pricing"
— Srinivas Phatak, CFO

Assessment: The margin architecture has become more fragile, not less. Full-year underlying margin expansion now depends on overheads holding a 70bps gain that is one-time by construction, since the €800m productivity programme is complete, while gross margin runs flat and brand investment stays inside a 15% to 16% band management has said it will not breach downwards. There is no third lever left for 2027 if gross margin does not turn.

EPS

Underlying EPS of €1.61 came with six points of adverse currency inside it, and reported diluted earnings from continuing operations still fell. That is the third consecutive reporting period in which constant-currency delivery has failed to reach the euro line, and it is the core of the standing bear case. What changed this half is the trajectory rather than the level: the currency effect on turnover narrowed from (5.9)% for 2025 to (4.9)% in the half to (2.4)% in the quarter, and the company now guides to roughly (3)% for the full year on July spot rates, which arithmetically implies about (1)% in the second half.

"Based on July spot rates, we expect the full year impact to be around 3%, implying a meaningfully lower headwind in the second half."
— Srinivas Phatak, CFO

Assessment: The gap between what the business does and what shareholders receive is closing for the first time since we picked up coverage. It has not closed. But a six-point currency drag on underlying EPS that halves in the second half is worth roughly three points of reported earnings growth that the market is not currently paying for.

Segment Performance

The four business groups split cleanly in two. The three home and personal care groups accelerated together in the second quarter to 7.6% growth with 7.4% volume. Foods, which is on its way out of the group, went to almost nothing.

Beauty & Wellbeing (25% of turnover)

The fastest-accelerating group in the quarter, from 5.9% in the half to 8.1% in the second quarter with 6.9% volume, and the one where the premiumisation strategy is most visibly working. Hair care grew 9% in the half with Dove, Sunsilk and K18 all double-digit, and the prestige portfolio accelerated, with Paula's Choice, Hourglass and Tatcha all delivering double-digit growth in the quarter. Wellbeing, the part of the portfolio that caused the fourth-quarter scare, improved: Liquid I.V. returned to double-digit growth in the quarter and Olly grew double-digit on distribution gains. Reported turnover grew only 0.3% because currency cost the group 6.0%, the heaviest of the four.

Skin care remains the drag, growing only low single digit despite double-digit Vaseline and accelerating prestige, and management named the reason without prompting.

"the issues in skincare for us is some decline in some of our Asian legacy brands, particularly Fair & Lovely in India and Ponds in Southeast Asia"
— Fernando Fernandez, CEO

Assessment: Underlying operating profit grew just 1.0% on 5.9% underlying sales, the weakest profit conversion of the three growing groups, because this is where brand investment is concentrated and where gross margin fell. That is the correct trade at this point in the portfolio's life, but it means Beauty & Wellbeing is currently a growth asset rather than a profit asset, and the legacy Asian skin brands are a live problem with no disclosed timeline.

Personal Care (27% of turnover)

The largest group by turnover and the best profit conversion: 4.8% underlying growth turned into 4.8% underlying profit growth and 22.2% margin. The quarter accelerated to 5.9% growth on 6.8% volume, with price actually negative at (0.9)% because of World Cup promotional support against strong prior-year price comparatives. Deodorants grew mid single digit across both developed and emerging markets, and the United States regained category leadership.

"we have regained market leadership in U.S. after 2 years"
— Fernando Fernandez, CEO

Assessment: This is the cleanest evidence in the print that the Latin American deodorant fix promised for "quarter 2 onwards" in February actually landed, with Brazil deodorants high single digit in the quarter behind the aerosol format shift and shelf reset. It is also the group most exposed to the second-half pricing pivot, since 6.8% volume on (0.9)% price is not a mix that survives a price increase unchanged.

Home Care (23% of turnover)

The outstanding performance of the half at 7.6% growth with 7.4% volume, accelerating to 9.1% and 8.6% in the quarter, led by India and Brazil. Underlying margin expanded 30bps to 15.8% despite this being, in management's words, the group with the highest exposure to commodity inflation and the largest emerging-market footprint. India delivered its strongest Home Care growth in three years and reached its highest ever category share; Cif grew double-digit and Domestos high single digit.

The chief financial officer was candid that part of this is a competitive-dislocation benefit rather than pure demand.

"Given our supply resilience, given the fact that we have the financial strength from a balance sheet given that we have the formulation flexibility R&D, it is quite possible that we have gained at the expense of some of the regionals and the locals in home care, notably in different parts of the world."
— Srinivas Phatak, CFO

Assessment: Home Care is simultaneously the growth story of the half and the reason gross margin fell, because it carries a below-group gross margin and the highest inflation load, so its outperformance is dilutive at the gross line even as it is accretive at the underlying operating line. Management put roughly 70% of the group's inflation exposure in emerging markets and concentrated it in Home Care. If pricing lands here in the second half as guided, this is where the volume sensitivity shows up first.

Foods (25% of turnover)

Foods effectively stopped growing in the quarter, at 0.2% underlying with volume of (0.1)%, and reported turnover fell 2.7%. The release records second-quarter growth as "below our expectations." The half was 1.2%, led by emerging markets, with developed markets declining. Underlying operating profit fell 4.3% to €1,467m, though margin held flat at 23.3%, still the highest of the four groups. The specific hole is United States condiments, where the company lost share in premium and avocado-oil mayonnaise.

"Growth was led by emerging markets, while developed markets declined reflecting a softer market environment and increased competition in US condiments, where we are taking steps to correct share loss in new growth segments within premium and avocado mayonnaise."
— 2026 First Half Results announcement

Assessment: Because Foods is leaving, the market is entitled to discount this. We would not discount it entirely. Foods is 25% of turnover and carries the group's highest margin, so it is still 28% of underlying operating profit and will be inside the reported numbers for another four quarters at least. More importantly, a business being sold into a share-exchange transaction is a business whose delivery affects what Unilever's own shareholders receive in McCormick paper. A 0.2% quarter is not a neutral event for the 55.1% stake they are being handed.

Geographic Performance

Latin America is an emerging-market region and is shown here alongside North America because the two together account for the Americas geographic segment. It is not part of the developed-markets subtotal.

The regional table contains the answer to February's second bear point. Developed-market volume, which exited 2025 at 0.5% and which we flagged as the half of the group that reliably produced volume going quiet, ran at 1.9% for the half and 2.8% in the quarter. North America accelerated to 3.6% growth on 4.4% volume in a market management describes as soft. Europe is the exception and remains genuinely broken: (0.9)% for the half, (1.3)% in the quarter, with growth in France, Italy and the Netherlands more than offset by declines in Germany and Eastern Europe. Volume did turn marginally positive in the European second quarter at 0.3%, entirely because price was (1.6)%.

Emerging markets, at 60% of turnover, are doing the heavy lifting: India 8% in the half accelerating to 10% in the quarter, Indonesia 7% with a fourth consecutive quarter of growth, China mid single digit in a soft market, Latin America 7.6% accelerating to 8.9%. The currency table explains why this does not reach the reported line. The euro strengthened against the dollar from 1.088 to 1.167, and the rupee, rupiah, Turkish lira and Philippine peso all weakened by double digits, while the Brazilian real and Mexican peso strengthened. That is why Asia Pacific Africa carried a (7.7)% currency effect on turnover in the half while the Americas carried only (3.5)%.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: Management was the most assured it has been in the three reporting periods we have covered, and the assurance was specific rather than rhetorical: numbers of quarters, two-year stacks, share positions, a named market-growth benchmark. The one place the posture went general rather than quantitative was gross margin, where a commitment made in February was not met and the response was to reframe the second half around holding the current level rather than to acknowledge the miss. Analyst pushback was narrow and concentrated on whether the volume quarter was repeatable, and management answered it with data rather than adjectives.

1. The Volume Quarter and Whether It Repeats

The entire re-rating case rests on whether 5.5% volume in a single quarter is a trend or an artefact, and management pre-empted the question in the opening remarks by anchoring to longer windows rather than the quarter itself.

"This is Unilever's best quarterly volume performance since 2010."
— Fernando Fernandez, CEO

The supporting frame was three-layered: 5.5% in the quarter, 2.7% on a two-year average for the half, and roughly 3% across the last four quarters. On the call the chief executive extended the window further, citing 2.7% underlying volume growth across the last ten quarters with acceleration to around 3% over the last year. Against a weighted market volume growth of about 1.5%, all three layers imply share gain rather than category recovery.

Assessment: The disclosure discipline here is unusually good and it is the reason we are willing to act on the quarter. A management team that wanted to sell a single number would not volunteer a ten-quarter average that is half the headline. The one-offs were quantified and are small, and the market-growth benchmark was given unprompted so the share-gain claim could be checked.

2. Gross Margin Went Backwards Against an Explicit Commitment

Gross margin fell 70bps to 46.8%. In February the chief financial officer committed to 2026 gross margin expansion exceeding 2025's 20bps. Nothing in the half-year materials acknowledges that commitment, and the second-half guide is stability rather than recovery.

"Gross margin was 70bps lower at 46.8%, reflecting the benefits of volume leverage and productivity, offset by commodity inflation and calibrated pricing . This was particularly pronounced in Home Care."
— 2026 First Half Results announcement

The explanation is coherent: an inflation shock the company traces to the Middle East conflict, a deliberate decision to price late rather than lead, adverse mix as low-gross-margin Home Care outgrew everything else, and planned World Cup promotions. The chief financial officer also noted that gross margin improved sequentially against the second half of 2025, which is true and which the company chose not to lead with.

Assessment: A missed commitment matters more than a missed number, because it is the input to whether the next commitment can be underwritten. Our working assumption for 2026 gross margin moves from 47.2% to roughly 46.8%, and we no longer model gross margin expansion as a structural feature of this business until a full year delivers one.

3. The Second Half Is a Pricing Bet

Underlying price growth was 0.6% in the half and 0.2% in the quarter, against roughly 2% a year ago. Management has guided 4% to 5% second-half growth explicitly led by pricing, which requires a reversal of the intra-year trend inside two quarters.

"We expect underlying price growth to accelerate in the second half as commodity-driven pricing continues to land in market ."
— 2026 First Half Results announcement

The inflation load behind it was quantified on the call for the first time: roughly €850m for the full year on a like-for-like basis, inside a working range of €800m to €900m, of which about €550m lands in the second half. The basket is crude, vegetable oils, palm, soybean oil, packaging materials, parts of linear alkylbenzene and parts of energy. Around 70% of the exposure sits in emerging markets and it is concentrated in Home Care.

"we expect about EUR 550 million 2nd half, which means that the full year outcome is approximately EUR 850 million."
— Srinivas Phatak, CFO

Assessment: This is the single largest execution risk in the second half and it lands in the group's fastest-growing, most price-sensitive, most emerging-market-weighted business. Management concedes it expects "some bit of volume sensitivities." The guide of 4% to 5% growth with around 3% full-year volume implies second-half volume of roughly 2%, down from 4.2%, so the volume slowdown is already inside the number. The risk is that price does not land fast enough to fill the gap it leaves.

4. Currency Stops Being the Whole Story

The defining feature of this investment case since we picked up coverage has been a reporting currency that converts good constant-currency delivery into flat or negative euro delivery. The half still shows it: turnover up 0.5% against 4.8% underlying growth, underlying operating profit up 0.9%, underlying EPS up 2.4% with six points of currency inside it. What changed is the run rate.

The effect on turnover was (4.9)% for the half and (2.4)% in the quarter, and management guided the full year to around (3)% on July spot rates. That arithmetic leaves roughly (1)% for the second half. The half-year average rate table shows why: the euro strengthened against the dollar from 1.088 to 1.167 while the rupee, rupiah, lira and Philippine peso all weakened by double digits, but the Brazilian real and Mexican peso strengthened, which is what capped the Americas' drag at (3.5)% against Asia Pacific Africa's (7.7)%.

Assessment: February's note said we would model reported euros and treat any currency reversal as upside we were not paying for. That upside is now visible in the guidance rather than hypothetical, and it is the largest single contributor to the rating change. It is also the part of the thesis least under management's control, and July spot rates are not a forecast.

5. The Foods Separation and What Unilever Becomes

In March 2026 Unilever agreed to combine its Foods business with McCormick in a Reverse Morris Trust that values Foods at roughly $44.8bn, delivers $15.7bn of cash to Unilever, leaves Unilever shareholders with 55.1% of the combined company and Unilever itself with a retained 9.9%, and is targeted to generate about $600m of run-rate cost synergies over three years. The half-year update was procedural but concrete.

"On 23 July 2026 , McCormick announced the planned operating model and executive team of the combined company, along with the secondary listing location in London."
— 2026 First Half Results announcement

The chief financial officer added that four Unilever people will sit on the combined company's leadership team, and that carve-out accounts, tax and anti-trust workstreams are on track. Completion is guided to mid-2027 at the latest, subject to McCormick shareholder approval, regulatory clearances and Works Council consultation.

"we have 4 members from a Unilever side who are going to be on the top table of the combined company"
— Srinivas Phatak, CFO

Assessment: The transaction removes the group's slowest-growing business, at 1.2% first-half growth against 4.8% for the group, and its highest-margin one, at 23.3% against 20.3%. It is growth-accretive and margin-dilutive by construction, which is the right trade for a multiple. The part that is under-discussed is that Unilever shareholders end up owning 55.1% of a flavour company, so Foods' delivery between now and mid-2027 is not a cost-free irrelevance to them. A 0.2% Foods quarter is a small mark against the paper they are being handed.

6. Emerging Markets Finally Compound

The February scorecard put emerging-market self-help at Neutral, on the grounds that a 5.8% fourth quarter leaned on a 17% Indonesian print the company itself flagged as non-repeating. The half answers that directly: emerging markets grew 7.0% with 5.8% volume, accelerating to 8.3% and 7.4% in the quarter, on a broad base rather than a single geography. India grew 8% with 6% volume, accelerating to 10% in the quarter.

"In the second quarter, both Home Care and hair care reached their highest ever market shares."
— 2026 First Half Results announcement

Indonesia grew 7% and posted a fourth consecutive quarter of growth, which is the specific evidence the February note asked for. Latin America grew 7.6% with the second quarter at 8.9% and volume at 8.8%, driven by Brazil returning to double-digit growth in laundry behind the Wonder Wash liquids innovation and the lapping of last year's corrective pricing.

Assessment: This pillar moves from Neutral to Confirmed. The distinguishing feature is that the growth is corroborated by share data at the category level in the two largest emerging markets rather than by comparatives, and it is spread across India, Indonesia, China, Africa, Brazil, Argentina and Mexico rather than concentrated.

7. North America Outperforms and Then Trips Over Mayonnaise

North America grew 2.7% for the half with 3.2% volume and accelerated to 3.6% with 4.4% volume in the quarter, in a market management repeatedly described as soft. On the call management put United States prestige growth at close to 12% for the half and United States hair care at more than 8%, and deodorant leadership was regained. Liquid I.V. returned to double-digit growth in the quarter, helped by the Amazon Prime Day shift.

Against that, United States condiments lost share in the fastest-growing premium segments, and the chief executive was blunt about it.

"So we see the quarter 2 performance in foods as an outlier in what has been a consistent outperformance in the sector, but we are very confident in the right deductions that we have put in place, and we expect the second half to be better."
— Fernando Fernandez, CEO

The remedy named was a Hellmann's avocado line hitting shelves now, distribution gains already landing at key retailers, and a new price architecture in the squeeze format.

Assessment: The condiments problem is real, self-identified and being addressed with product rather than price, which is the right response. It is also a Foods problem, and Foods is leaving. The more durable read is that the non-Foods North American portfolio outgrew a soft market on volume for a third consecutive year, which is what the February note said had stopped happening.

8. Europe Is Still Not Working

Europe declined (0.9)% in the half and (1.3)% in the quarter, and is 18% of group turnover. Volume did turn marginally positive in the quarter at 0.3%, but only because price fell 1.6%. Beauty & Wellbeing and Personal Care both grew low single digit; Home Care gained share while lapping a high single-digit volume comparator; Foods declined. Performance was uneven, with France, Italy and the Netherlands growing and Germany and Eastern Europe declining. Management attributed part of the price weakness to taking longer over negotiations with European retailers while calibrating the cost impact of the Middle East conflict.

Assessment: Europe is the one region where nothing in this print improved on a durable basis, and it received the least airtime on the call of any material geography. A region that generates almost a fifth of turnover and is shrinking is a permanent drag of roughly 20bps on group growth, and it has now been so for four consecutive reported periods.

9. The Tail Returns to Growth

Non-Power Brands, 22% of revenue, were one of the three bear points we established in February, having deteriorated to (3)% volume in the fourth quarter of 2025 with no disclosed split between deliberate deletion and competitive loss. That reversed.

"Nonpower brands returned to positive growth in the second quarter."
— Srinivas Phatak, CFO

The framing was that the company continues to optimise tail brands and related investments while supporting what it calls local jewels. Power Brands themselves grew 6.0% in the half and 6.9% in the quarter with 6.8% volume, and 15 of the 30 grew double digit in the quarter.

Assessment: A single positive quarter does not retire this bear point, and the deletion-versus-loss split is still not disclosed. But the direction reversed and the gap between Power Brands and the tail narrowed for the first time under our coverage, which downgrades the risk from Emerging to Contained.

10. The World Cup: Capability Build or Pull-Forward

Personal Care was an official FIFA World Cup sponsor and the company describes the activation as the largest in its history: 35 brands across more than 120 markets, more than 50,000 content creators with a combined audience above 600 million, and 180 limited-edition products. It also cost price growth in the quarter, since Personal Care price was (0.9)% on promotional support.

Management declined to size the sales contribution.

"the FIFA World Cup finished on the 19th of July. So we don't have yet the results to really validate what has happened there."
— Fernando Fernandez, CEO

Assessment: The refusal to quantify is defensible on timing, since the tournament ended nine days before the print, and it cuts both ways: an unquantified benefit is also an unquantified comparative problem for the second quarter of 2027. The one-off management did quantify, the €25m to €30m Amazon Prime Day shift worth about 20bps, is conspicuously not the World Cup. Investors should assume some portion of the 5.5% is activation-driven and will not repeat, and should expect no help sizing it until the third-quarter statement at the earliest.

11. Capital Allocation and a Step Up in Leverage

The €1.5bn buyback announced in February commenced on 30 April and completed on 5 June, retiring 30,703,780 shares. The quarterly dividend rose 3.0% to €0.4664, equivalent to US$0.5305 per ADR at the WM/Reuters rate of 24 July 2026. Free cash flow was €1,549m against €1,084m, and the company reiterated cash conversion of around 100% for the year.

The offset is leverage. Net debt rose to €25,961m from €23,076m at the year end, taking net debt to underlying EBITDA to 2.3x from 2.0x, driven by dividends and the buyback. Management guides back to around 2x for the full year. Net debt is in fact €394m lower than at 30 June 2025, so the increase is a within-year seasonal and distribution effect rather than a deterioration.

Assessment: The €6bn of buybacks committed for 2026 to 2029, underwritten by the $15.7bn of McCormick cash, is roughly 5% of the current market value and is the most concrete part of the separation's value to existing holders. Leverage at 2.3x is unremarkable for a staple with this cash conversion, and the year-on-year comparison is the more informative one.

12. Brazil's VAT Reform Creates a Fourth-Quarter Air Pocket

Brazil moves to a dual value-added tax system from 1 January 2027, replacing about five existing taxes. The company flagged the transition unprompted in the release and expanded on it at length in the Q&A. The economics are designed to be revenue-neutral, but the accounting is not neutral to the reported lines.

"as a consequence of this reported revenue will be lower. Cost will be lower, which means that there will be an adverse impact on USG, there will be a positive impact on margins. While the overall profitability of the business will remain unchanged."
— Srinivas Phatak, CFO

The near-term issue is customer behaviour during the transition. Management expects retailers to reduce stocking in the fourth quarter of 2026 because of uncertainty over input credits on inventory held across the change, and says it has factored some of that into the full-year guide without saying how much. The impact is expected to fall on home and personal care rather than Foods.

Assessment: This is a real fourth-quarter risk to a full-year guide that was just raised, and it is unquantified. It is also, importantly, presented as a mechanical transfer rather than an economic loss, and it arrives with a margin benefit attached from 2027. We treat it as timing noise inside the guide and a reason not to over-extrapolate any fourth-quarter shortfall.

Guidance & Outlook

The upgrade is real but narrower than the headline suggests. Underlying sales growth moved from the bottom end of a range to inside it, which on the company's own second-half guide of 4% to 5% points to a full year somewhere around 4.5%. The genuinely raised number is volume, from at least 2% to around 3%, and that is the number that matters, because volume is the variable management has said repeatedly is its overriding priority and the one the market had least confidence in.

Implied second-half ramp: First-half growth of 4.8% and a full-year outcome of around 4.5% require the second half to run at roughly 4% to 4.5%, consistent with the guided 4% to 5%. On volume, first-half 4.2% against a full-year "around 3%" implies second-half volume of roughly 1.8% to 2%, which is a deceleration of more than two points from the first half and slightly below the second half of 2025. Price therefore has to carry roughly 2 to 3 points of second-half growth, against 0.2% in the second quarter. That is the whole bet.

Where the Street sits: Consensus was 4.3% for the second quarter and the company delivered 5.8%. Post-print, the sell-side response split: several desks raised targets and one upgraded outright on the volume evidence, while the standing bearish ratings did not move and lifted targets only modestly. The dispersion is unusually wide for a mega-cap staple, with bull targets implying low-to-mid teens upside against bear targets implying a similar magnitude of downside.

Guidance style: This management team has now guided conservatively twice and been beaten by its own business twice. The February range was set at the bottom, the April statement reconfirmed it after a 3.8% first quarter, and the July statement raised it only to "within" the range after a 5.8% quarter. A team that wanted credit for momentum would have guided to the upper half. The pattern argues that around 4.5% is a floor rather than a target, and it is also a reason to treat the unquantified Brazil provision as genuine conservatism rather than a hidden problem.

Analyst Q&A Highlights

Whether the Volume Beat Survives the Price Increases

The dominant line of questioning on the call was not whether the quarter was good but whether it was durable once pricing lands. Management's answer refused the quarter as the unit of analysis and substituted multi-quarter averages, market growth rates and share positions, then named the one place it is losing.

Q: "for the full year, you now raised the guidance on volume to 3% versus 2% prior. Can you talk about how the markets you are facing in terms of market growth has developed."
— Celine Pannuti, JPMorgan

A: "But it's not a strong quarter in isolation. We have delivered 2.7% underlying volume growth across the last 10 quarters. and we have accelerated in the last year to 3.1%. We believe this is a result of stronger brands."
— Fernando Fernandez, CEO

Assessment: The answer was better than the question required. Volunteering a ten-quarter average that is half the headline number, alongside a 1.5% market-growth benchmark that lets an outsider check the share-gain claim, is the behaviour of a team that expects to be held to a trend rather than a print. It is also the single most useful piece of information on the call.

Retailer Destocking in the United States

Several peers had flagged United States retailer destocking into this reporting season and Unilever had not mentioned it at all, which invited the obvious question of whether the company was seeing something different or simply not disclosing it.

Q: "The first one is on destocking from retailers in the U.S. You haven't mentioned that at all, and we hear many of your peers talk about it. Maybe could you tell us why you think that happens to your peers and not to you would be quite useful to understand."
— Nicolas Jerome Ceron, Bank of America

A: "We have seen a bit more destocking in foods than in HPC. But really, we didn't wanted to call it out because it's not material, and these kind of things can go one way or the other."
— Fernando Fernandez, CEO

Assessment: A partial disclosure delivered under questioning rather than in the release. The admission that destocking is heavier in Foods is a small negative for a business already at 0.2% growth, and the decision not to call it out is defensible only if it stays immaterial. This is a line to re-ask at the third-quarter statement.

The Second-Half Margin Bridge

With absolute gross margin guided flat, the second-half margin arithmetic depends entirely on brand investment and overheads, and this exchange produced the only quantification of the inflation load anywhere in the reporting package.

Q: "I heard you saying the absolute gross margin will be the same in H2. But what do you expect for BMI and overheads in H2?"
— Warren Ackerman, Barclays

A: "So we expect about EUR 550 million 2nd half, which means that the full year outcome is approximately EUR 850 million. As you would appreciate, there's been a lot of movement in some of the commodities in the last few days. here for the ranges that we are working with is somewhere could be between 800 to 900, but a center point really being 850."
— Srinivas Phatak, CFO

Assessment: Useful and volunteered, but it also confirms the second half absorbs roughly two-thirds of the year's inflation with gross margin guided flat, which can only be true if pricing lands as planned. The same answer reaffirmed a 15% to 16% normative band for brand investment and said the underinvestment era is over, which caps the margin lever from that line. The bridge works on paper and has no slack in it.

Mechanics of the Brazilian VAT Transition

A risk flagged in the release for the first time drew a request for sizing and category detail, and the response was the most technically complete answer on the call.

Q: "Could you tell us if it will affect a specific category? And what's the magnitude of it? Is it a bit like GST in India and could it affect Q3 initially?"
— Jean-Olivier Nicolai, Goldman Sachs

A: "The reform is also designed around the principle of revenue neutrality. Therefore, over a period of time, there should not be a fundamental change to the economics of the business."
— Srinivas Phatak, CFO

Assessment: Management answered the mechanism and the timing precisely, ruled out a third-quarter effect, identified home and personal care as the exposed side, and explicitly distinguished it from India's GST because that reform lowered the overall tax incidence and this one does not. It declined to answer the magnitude question, which was the one that was asked.

Sizing the World Cup Activation

Having been told there were no significant one-offs in the results, the call pressed on how that could be reconciled with the largest brand activation in the company's history occurring inside the quarter.

Q: "I think you said earlier there was no significant one-offs in the results. This is with FIFA, the biggest activation program in the history of the company."
— Jeff Stent, BNP Paribas

A: "We believe that there will be a residual effect of this activity in terms of the strengthening of our brands."
— Fernando Fernandez, CEO

Assessment: The question was fair and the answer was a redirection from measurement to intent. The timing defence holds for now, since the tournament did not finish until 19 July, after the quarter had closed and only nine days before the print. But a company that can quantify a €25m to €30m Amazon Prime Day shift to 20bps of group growth can eventually quantify this, and until it does, some part of the best volume quarter since 2010 is unattributed.

Second-Half Volume Cadence and Whether Retailers Pre-Bought

A recurring concern was that the quarter's volume had been flattered by retailers building stock ahead of announced price increases, which would make the second half worse by exactly the amount the second quarter was better.

Q: "just in terms of the second half volumes, I'm trying to get a gauge here between third and fourth quarter."
— David Hayes, Jefferies

A: "We don't see any significant difference between selling and sell out. Of course, that means that there is no prebuy. Why would we allow retailers to prebuy at a lower price? That doesn't make a lot of sense."
— Fernando Fernandez, CEO

Assessment: The logic is sound and the sell-in against sell-out comparison is the right evidence, but it was asserted rather than shown. The chief financial officer then supplied the number that actually answers the cadence question, noting the volume comparative steps up from about 1% in the first half of 2025 to about 2% in the second, which is most of the reason guided second-half volume is roughly 2% rather than 4%.

Price Elasticity as the Increases Land

The most forward-looking exchange on the call asked whether the volume response to the corrective price cuts of the last year implies a symmetric volume loss when prices go the other way.

Q: "So my question is, are elasticities increasing at the moment in your categories, I mean, maybe with a more price-conscious, less brand loyal consumer -- or are you simply being a bit conservative when it comes to your guidance for volume growth development in the back half?"
— Guillaume Gerard Delmas, UBS

A: "So it's true that elasticity seems to be significant when we adjust the pricing to what it should be in terms of a strategic price index. Going forward, our portfolio is premiumizing. We tend to see lower elasticity in the most premium areas of our portfolio."
— Fernando Fernandez, CEO

Assessment: This is the most honest and the most uncomfortable answer of the call. Management is conceding that elasticity is high where prices are away from the strategic index, and that around 90% of revenue is now at the relative price it wants, up from 50% to 60% two or three years ago. Read together, that means the easy volume from price correction has largely been harvested, and the second-half price increases go into a portfolio that is already correctly priced. The claim that premiumisation lowers elasticity is plausible and unproven.

What They're NOT Saying

1. The February gross margin commitment. Neither the release nor the prepared remarks acknowledged that a specific commitment to expand 2026 gross margin by more than 20bps has been abandoned. The half delivered (70)bps and the second half is guided flat. The reframing to "gross margins have actually improved" on a sequential basis is true and is not the commitment that was made.
2. The size of the World Cup contribution. The largest activation in company history sits inside the best volume quarter since 2010 and is unquantified, while a €25m to €30m shipment-phasing effect is quantified to the basis point. Investors cannot separate campaign from trend, and will not be able to until the comparative arrives in 2027.
3. The Brazil provision. Management says it has "factored some of that into our full year guide" for fourth-quarter destocking and does not say how much. A raised full-year guide with an undisclosed provision inside it is harder to hold management to.
4. Volume against mix. Underlying volume growth combines both and the chief financial officer confirmed that splitting them is not the company's intention, offering only a qualitative comment that volume ran ahead of mix this half. In a half whose entire investment case is the volume number, refusing the split is a material omission.
5. Third and fourth-quarter shape. No quarterly guidance was given inside the second-half range, in a half where the two quarters face materially different comparatives and where Brazil's disruption is expected in only one of them.
6. Foods carve-out financials. Nearly five months after the McCormick agreement, carve-out accounts are still described as a workstream in progress. Shareholders being handed 55.1% of a combined company have no standalone Foods balance sheet, leverage or cash-conversion disclosure to underwrite it with.
7. Oral Care. Disclosure stops at low single-digit growth with balanced volume and price. No share figure, no market context and no recovery timeline were offered for a category management itself says it is not happy with, and which it concedes it has not discussed much in recent quarters.
8. The United States club channel. Wellbeing's club-channel exposure was sized at around 30% of that business's revenue, and space lost to private label was acknowledged, but the magnitude of the loss, its trajectory and any plan to recover it were not given.
9. Return on invested capital and half-year cash conversion. Both are annual disclosures for this company, but ROIC of 19.0% was a headline pillar of the full-year release in February and the half-year package offers no read on whether an increase in net debt and €767m spent on Grüns has moved it.

Market Reaction

• Pre-print setup: The ADR closed at $61.37 on 27 July, down 6.2% year to date against the S&P 500's +8.3%, down 8.0% over twelve months, and up 1.4% over the trailing thirty days. The 52-week closing range entering the print was $55.05 to $74.59, so the shares were sitting 17.7% below their February closing high and 11.5% above their June closing low.
• Reaction session: The ADR gapped 8.6% higher to open at $66.65, traded a $66.27 to $67.44 range, and closed at $66.87, up 9.0% or $5.50 on the day. The S&P 500 closed +0.2%.
• Volume: 13.7 million shares against a 30-day average of 3.8 million, or 3.6 times normal. In London the ordinary shares closed up around 6% at their highest level since early March, on what was reported as the best session in two years.
• Since the print: The ADR closed at $63.40 on 20 August, giving back $3.47 or 5.2% of the reaction move over seventeen sessions, while the S&P 500 rose 2.9% over the same window. Year to date the shares are (3.1)% against the index's +11.6%.

The reaction itself is easy to read. A 150bps beat on the metric the company is scored on, delivered with volume rather than price, against a share price that had already fallen 17.7% from its February high, produced a violent re-rating in a name where positioning had clearly been light. The 3.6 times volume multiple says this was repositioning rather than incremental buying at the margin.

The give-back since is the more interesting number, and we do not think it is a verdict on the quarter. Three things have happened in the seventeen sessions since: the shares reached their highest level since early March and met resistance there, the sell-side split rather than converged, with bullish targets rising and bearish ratings unmoved, and the second-half pricing bet moved from a headline to something the market has had three weeks to model. A stock that gapped 8.6% at the open on a half-year statement had no orderly price discovery on the day itself, and the fade looks like that discovery happening late.

The practical consequence is that the entry point today is better than it was on the day of the print. The shares are 5.2% below the reaction close and 13.7% below where they traded when we initiated at Hold in February, while the operating evidence has improved on every metric except gross margin.

Street Perspective

Debate: Is 5.5% volume a trend or an activation

Bull view: The bull case on the Street is that the quarter is corroborated by everything around it. A ten-quarter average of 2.7%, a two-year stack of 2.7% for the half, a roughly 3% four-quarter run rate, and market volume growth of about 1.5% mean the company is taking share broadly, not riding a cycle. Category share records in India in both hair and home care, and regained deodorant leadership in the United States, are share data rather than sales data and cannot be manufactured by a comparative.

Bear view: The bear camp contends that a quarter containing the largest brand activation in the company's history, a shipment shift from the third quarter, a lapped price correction in Brazil, a supply-driven competitive dislocation in Asian laundry, and a soft prior-year volume comparative of about 1%, is not a clean read on anything. Management quantified only the smallest of those effects and declined to quantify the largest.

Our take: The bull side is stronger and the bear side is asking the right question. The multi-quarter averages and the share data are hard to fake, and the market-growth benchmark was volunteered precisely so the claim could be checked. But we would not underwrite 5.5% as a run rate, and neither does management, whose own full-year volume guide of around 3% implies second-half volume of roughly 2%. The trend is real at about 3%; the quarter is about 3% plus activation.

Debate: Does the second-half pricing pivot cost more volume than it recovers in margin

Bull view: Some desks argue this is the easiest pricing environment the company has faced in three years. About 90% of revenue now sits at its strategic relative price against competition, up from 50% to 60% two or three years ago, so increases go in from a position of competitive parity rather than as a correction. The portfolio is more premium than it was, which structurally lowers elasticity, and the inflation is industry-wide, so competitors price too.

Bear view: The bear camp points out that management's own evidence runs the other way. Asked directly about elasticity, the chief executive said the volume response to price corrections has been strong, which is the same statement as elasticity being high. Roughly €550m of second-half inflation is concentrated in Home Care, the group's fastest-growing and most emerging-market-weighted business, and that is precisely where a price increase does the most volume damage. Gross margin is guided flat despite the pricing, which means the pricing barely covers the inflation and delivers no margin upside at all.

Our take: The bear reading of the elasticity answer is correct and the bull reading of the starting position is also correct, and they resolve into a narrow rather than a wide outcome. Second-half growth of 4% to 5% with volume around 2% is achievable; second-half gross margin expansion is not, and management has stopped claiming it. What we would watch is not the growth number but whether volume comes in above or below 2%, because that is the elasticity test in a single figure.

Debate: Does the McCormick separation deserve a re-rating before it closes

Bull view: A growing consensus view is that the residual Unilever is a genuinely different asset: a pureplay home and personal care company growing 7.6% in the second quarter with 7.4% volume, versus a group number dragged to 5.8% by Foods at 0.2%. That business should trade with beauty and personal care peers rather than food peers, and $15.7bn of cash plus €6bn of committed buybacks arrives to accelerate the transition. The re-rating has not started.

Bear view: The bear camp contends that mid-2027 is a long way away, the deal requires McCormick shareholder approval and multiple regulatory clearances, carve-out financials do not yet exist, and in the meantime shareholders own 25% of turnover and 28% of underlying operating profit in a business that just printed 0.2% growth and is losing share in United States condiments. They also end up owning 55.1% of the combined company, so Foods' problems do not disappear at closing; they change ticker.

Our take: Both are right and the market is currently paying for neither. The residual HPC business is worth more than the blended multiple implies, and the transaction risk between here and mid-2027 is real and unhedged. Our resolution is to underwrite the operating improvement, which is happening now and is visible in the numbers, and to treat the separation as optionality rather than as the basis for a target price. That is a deliberate choice to leave the re-rating case out of the valuation.

Model Implications

Our February estimates were set at initiation and anchored to guidance. The half requires four changes: gross margin down, currency less punitive, volume and therefore underlying sales growth up, and free cash flow up.

FY 2025 actuals are as reported in the 2025 Full Year Results announcement of 12 February 2026. Prior FY 2026 estimates are our own, published at initiation on 13 February 2026. The 2026 turnover estimate compounds the four growth components on the FY 2025 base of €50,503m: €50,503m x 1.045 x 1.005 x 0.97 = €51.4bn. The 2026 underlying EPS estimate is the reported first half of €1.61 plus a second half of approximately €1.64, which is 8.6% growth on the second half of 2025 (FY 2025 underlying EPS of €3.08 less the re-presented first half of €1.57 leaves €1.51) and assumes the currency drag on underlying EPS narrows from six points to roughly one, consistent with the company's own turnover currency guidance.

Valuation. The ADR is one-for-one with the ordinary share. On the 20 August close of $63.40 and a euro-dollar rate of 1.1696, the shares are at €54.21, which is 17.6x 2025 underlying EPS of €3.08 and roughly 16.7x our 2026 estimate of €3.25. That compares to approximately 20x trailing and 19x forward at the time of our February note. The multiple has come down about 12% while our growth estimate has gone up.

Price target: $70, down from $76. The target is 18.5x our 2026 underlying EPS estimate of €3.25, or €60.13, converted at 1.1696. The lower multiple reflects the fact that 2026 gross margin is no longer expanding and that full-year margin improvement now rests on a one-time overhead gain. It implies +10.4% from $63.40. The declared quarterly dividend of US$0.5305 per ADR annualises to $2.12, a 3.3% yield, for an expected total return of roughly 13.7%.

The target falling while the rating rises is deliberate and worth stating plainly. In February we published a $76 target against a $73.46 share price, for 3.5% implied upside and a market-like total return, which is the definition of a Hold. The stock is now 13.7% lower and the target is 7.9% lower, so the implied return has roughly tripled. Nothing in the target reflects the McCormick separation, which we treat as optionality outside the valuation.

Thesis Scorecard Post-Earnings

The pillars below are the ones established at initiation in February. They are scored against this half, not replaced.

Grading February's commitments

Overall: Thesis strengthened. Six of seven pillars moved favourably or held, including two bear points downgraded and one bull pillar promoted from At Risk to On Track. The single deterioration is the one that matters most for the long-run quality of the business, and it is a broken commitment rather than a missed estimate. On the balance of evidence, the operating case has improved more than the margin case has weakened, and the share price has moved the other way.

Action: Upgrade to Outperform. February's Hold was explicitly conditional on two tests: a currency reversal that converts constant-currency delivery into reported delivery, and evidence that 4% growth was the floor rather than the ceiling of the multi-year range. The company has now supplied a partial answer to the first and a clear answer to the second, while the shares are 13.7% lower. We would revisit this on either of two things: second-half volume printing below 1.5%, which would mean elasticity is worse than management believes, or a full-year gross margin below 46.8%, which would mean the flat guide was itself optimistic. The commitments to watch into the third-quarter statement on 28 October are whether pricing accelerates to the 2% to 3% the second-half guide requires, whether the Brazilian destocking provision is quantified before it lands, whether Foods growth recovers from 0.2% as management expects, whether Europe stops declining, and whether carve-out financials for Foods appear in time for shareholders to underwrite the McCormick paper they are being handed.