UN Unilever NV

Hindustan Unilever Ltd. (500696.BY), India's largest consumer goods maker by sales, Saturday posted a worse-than-expected 22% fall in second-quarter net profit, primarily because of one-time expenses.

Also, the company reported just a 1% expansion in sales volume at its local consumer goods business, belying expectations of a strong rebound in demand for its products such as soap bars and detergent packs.

The Unilever PLC unit had witnessed a 2% volume growth in the April-June period after a 4% fall a quarter earlier.

It said net profit in the July-September quarter fell to INR4.29 billion from INR5.47 billion a year earlier. Net sales rose 5% to INR42.28 billion from INR40.28 billion.

The average forecast of 11 analysts polled by Dow Jones Newswires was for a net profit of INR4.90 billion.

Results for the just-ended quarter included an exceptional loss of INR1.35 billion, largely due to a provision related to a settlement with former workers at a closed unit. The year-earlier quarter had an exceptional gain of INR1.09 billion, primarily from a property sale.

Profit from operations before interest and exceptional items rose 17% to INR6.06 billion from INR5.20 billion.

Revenue from local consumer goods sales rose 7% from a year earlier to INR39 billion, with 1% of that coming from volume growth and the rest from higher prices.

Previously, strong consumer demand had allowed Hindustan Unilever to pass on higher input costs to customers without much impact on demand. However, price-sensitive customers are now buying fewer of the company's products as they switch to cheaper brands in a slower economy.

Chief Financial Officer R. Sridhar told reporters on an earnings call that the muted growth in sales volume was largely because of pressure on the company's low-priced soaps and detergents segments, which contribute about a quarter of its local sales.

Chairman Harish Manwani, in a statement, said the company is actively strengthening its full portfolio and improving its competitiveness in the mass segment for its soaps and detergents.

"We remain determined to profitably grow volumes and further strengthen our market leadership across categories," Manwani added.

Advertising and promotion costs rose 38% to INR5.71 billion, driven primarily by product relaunches and higher contribution of personal products segment--which requires more advertisements--to sales, the company said.

Operating margin improved by 140 basis points on the back of price hikes taken last year, improved sales mix and higher cost savings, it said.

-By Rumman Ahmed, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com

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