Unilever reveals profit margins hit by cost inflation as giant faces row over Ben & Jerry’s settlement boycott

ising costs for everything from palm oil to crude have put pressure on profit margins at Unilever, the consumer goods giant announced on Thursday.

The multinational, behind brands from Dove Soap to Hellmann’s, had a 2020 operating margin target of 20%. But despite recently stepping up price rises, the firm said its underlying operating margin for the six months to June was down 100 basis points on the same period in 2020, to 18.8%.

The firm now expects 2021 full-year underlying operating margin to be “around flat”.

Finance chief Graeme Pikethly said “inflation has been even higher than we anticipated”, and is increasing at the fastest pace for a decade, with prices for palm oil up 70%. The raw material is used in many products, and the price rise is hitting Unilever’s personal care division.

He also put the margin hit down to marketing spend, and said the “ambition is still to deliver an improvement” to margins.

It comes days after high-end mixer-maker Fever-Tree also warned challenges posed by rising global logistics costs have “progressively impacted” its margins.

Unilever reported a better-than-expected 5.4% underlying sales growth in the first half, however, and second quarter turnover was €13.5 billion (£11 billion), up 1.2% on the same period a year earlier. The FTSE 100 firm also said it is continuing with its €3 billion share buyback program.

The update came as the firm faced controversy over a decision by subsidiary Ben & Jerry’s to stop sales in occupied Palestinian territories.

The brand plans to halt sales in the West Bank and East Jerusalem when a deal with a local distributor expires in 2022. In a statement released on Monday, the brand’s board said sales in the occupied territories are “inconsistent with our values”.

Unilever bought Ben & Jerry’s in 2000. The decision was taken by the Vermont-based ice cream brand’s board, which has a large amount of independence within the multinational.

Israel’s right-wing and pro-settlement Prime Minister, Naftali Bennett, called Unilever CEO Alan Jope this week, saying the move was an “anti-Israel measure” and threatening a “strong” response.

Unilever has said it is “fully committed” to its presence in Israel, and Pikethly declined to comment on the issue this morning.

Shares fell as much as 4.5% on Thursday morning.