Unilever (ULVR) shares were 2.5% down in early trading after it revealed a drop in full year revenues this morning and under par fourth quarter sales.

The group’s revenue for 2014 declined 2.7% to €48.4bn (£37.05bn) - slightly below expectations - including a negative currency impact of -4.6%. Also undershooting forecasts was the fmcg giant’s fourth quarter underlying sales growth of 2.1% - well below consensus estimates of 2.6% growth.

Chief executive Paul Polman warned that the industry’s “challenging” conditions were not expected to significantly improve in 2015, further adding to the air of gloom around the earnings announcement.

Unilever’s sales growth weakness isn’t entirely surprising. The company’s revenues have been on the slide since 2012 (when turnover reached €51.3bn) after a period of tremendous emerging markets-driven growth.

Importantly though, Unilever’s profits are heading in the right direction after it posted an unexpected boost to earnings and margins – suggesting that rather than throw everything at chasing increased volume, Unilever has concentrated on underlying profitability last year in a tough market. It’s a decision that seems to be paying off.

Pre-tax profit was up from €7.11bn in 2013 to €7.65bn last year despite the sales slowdown, translating to an increase in core earnings per share of 11% at constant exchange rates and 2% at current exchange rates to €1.61.

Shore Capital analyst Darren Shirley argued that this earnings growth was an important achievement for Unilever as the company has previously been accused of failing to match sales growth with improvements in profitability.

“A failure to deliver EPS growth when sales growth was exceeding expectations has been a key criticism of Unilever, so to over-deliver when market growth is far more subdued should be applauded in our view,” he said.

The core EBIT margin increase of 0.4 percentage points implies a 90 basis points improvement to margin through the second half, Shirley noted.

Bernstein analyst Andrew Wood agreed that investors should look beyond Unilever’s weak top-line growth. “Unilever’s stock had a good 2014 and has started well in 2015 (helped by the Swiss Franc fallout as some investors have moved out of Nestlé) but we believe that beating EPS expectations is a nice positive, despite the weaker sales,” he said. “We continue to believe in Unilever’s ability to deliver healthy and stable operating performance in 2015 and beyond.”

Unilever has primarily achieved this margin improvement through targeted cost-cutting, including productivity savings and action on pricing and product innovation (though raw material costs increased in emerging markets).

This focus on efficiency could pay dividends in 2015, according to ShoreCap’s Shirley: “We see management taking increasing advantage of the growing capability and flexibility within Unilever, as its states it is “pulling all the levers” to drive efficiencies across manufacturing, logistics, central costs and below the line to support EPS growth,” he said.

This will be supported by lower oil costs, which will help reduce inflation across its raw materials and increase consumer spending power.

Unilever is also poised to benefit from its dominant position in the high-growth home and personal care sectors. But one blot on the horizon remains its underperforming food division. Food posted a full year underlying sales decrease of 0.6% as spreads in particular declined due to lower consumer demand for margarines in Europe and North America.

During the fourth quarter, Unilever announced its intention to set up a separate business unit for the European and North American spreads business, slated for the middle of 2015. However, this will remain wholly owned by Unilever and the division will require more than a name change to turnaround significant falls in volume.