By Saabira Chaudhuri 

LONDON -- Consumers are cleaning their hands and homes more as concerns about coronavirus continue to swirl around the world, and Unilever PLC is reaping the benefits of speedily retooling its business to capitalize on the trend.

Soon after coronavirus struck, the maker of Suave shampoo and Dove soap aggressively expanded its previously small hand-sanitizer business to meet surging demand. Before the pandemic it had just two manufacturing facilities making sanitizer, and the business wasn't a big focus. Now it has over 60 sites.

"We've stepped up capacity across multiple brands by a factor of, believe it or not, 600 times in just five months and we've launched sanitizers in 65 new markets," said Chief Executive Alan Jope on an investor call Thursday.

That booming business helped Unilever beat expectations in the second quarter, with underlying sales growth -- a closely watched figure that strips out currency movements and deals -- declining just 0.3%, compared with analyst estimates of a 4.3% fall. Its share closed up nearly 8% in London.

Mr. Jope said sales in Unilever's hygiene arm -- which includes cleaning sprays, hand soaps and hand sanitizers -- jumped 26% in the second quarter. Within that, sanitizer sales -- albeit from a small base -- rose by over 20,000%. The company's Domestos line of cleaners climbed 37%, while its Cif surface cleaners grew by 20%.

By region, North America was a bright spot, with Unilever reporting underlying sales growth of 9.5% -- its best quarterly performance in the region for over a decade, according to analysts at UBS. That gain was driven by its hygiene business and the shift toward more home-cooking during lockdowns, which buoyed sales of Hellmann's mayonnaise and ice-cream brands Magnum and Ben & Jerry's.

"How long will U.S. consumers remain preoccupied with hygiene? We think probably for quite some time," Mr. Jope said.

Unilever isn't alone in benefiting from the cleaning craze. Sales of hand sanitizer are up almost fivefold in the first half of this year, according to research firm Nielsen, with soap companies ramping up production and untraditional players such as distillers piling into the market. Other big hygiene brands, like Lysol owner Reckitt Benckiser Group PLC, also say they think the cleaning boom will outlast the pandemic.

Much of Unilever's hand-sanitizer rollout was done under its 125-year-old brand Lifebuoy, an affordable red carbolic soap originally aimed at workers in industrial England. Over the decades, as the number of workers in factory jobs declined, Unilever largely stopped selling the brand in developed markets like the U.K. and U.S., focusing instead on countries such as Brazil and India where the soap is marketed as a way to keep children free from infection.

The company only began selling Lifebuoy sanitizer in a few countries during the SARS outbreak in the early 2000s. Until recently its two production sites mainly pumped out gels aimed at young children and their parents, with bottles featuring cartoon characters and fitted with clips for school bags.

After Covid hit and orders for hygiene products came pouring in from retailers, Unilever repurposed manufacturing lines used for products including deodorant -- for which demand has slumped amid lockdowns -- to make hand sanitizer instead. South Africa, which previously imported Lifebuoy, began producing the brand locally, while in Vietnam it kitted out a factory to make sanitizer in 25 days. It also launched new sanitizer products under other brands like Suave in the U.S.

Since the start of the year Unilever said it has gone from making about 700,000 units of sanitizer a month to around 100 million units. It has moved 8,300 employees from slumping businesses such as out-of-home ice cream to ones focused on retail businesses to deal with the surge in demand for sanitizer and other products.

Despite the effort, Mr. Jope said there were still some cases where it was struggling to keep up with demand in North America.

However, the second quarter wasn't all rosy. On a call with reporters, Chief Financial Officer Graeme Pitkethly described the period as "probably the most testing we've ever seen," and said the results mask huge volatility in various businesses. "Although it looks like we are flat on topline, we had record growth and record declines just one click below that," he said.

For instance, Unilever said sales at its food-service arm, which provides ingredients to restaurants, declined nearly 40% over the first six months of the year, while sales of ice cream sold for out-of-home consumption dropped nearly 30%.

Those drops dragged down sales outside the U.S. In Europe, where Unilever's ice-cream business is far more out-of-home focused, sold in parks and through kiosks that are popular with tourists, the company reported an underlying sales decline of 4.5%.

Underlying sales in emerging markets overall dropped 1.9% in the second quarter, with declines in big markets such as India and the Philippines, where consumers have faced strict lockdowns that make shopping difficult.

Overall, Unilever reported a net profit of EUR3.28 billion ($3.80 billion) for the six months to June 30, compared with EUR3 billion a year earlier. Revenue declined to EUR25.71 billion from EUR26.13 billion.

The company also said it plans to spin off the majority of its tea business into a stand-alone entity, capping a review it launched earlier this year. It will retain its tea operations in India and Indonesia, as well as its Lipton ice-tea joint venture with PepsiCo Inc.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

July 23, 2020 14:36 ET (18:36 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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