UPDATE: Unilever Warns Of Tough Year Despite Strong Quarter
29 April 2010 - 11:24AM
Dow Jones News
Consumer-goods giant Unilever PLC (UN,UL) Thursday beat
expectations with its first-quarter sales, volumes and margins, but
warned investors not to get carried away as there is still a tough
year ahead.
The Anglo-Dutch company said sales before acquisitions,
disposals and currency movements grew 4.1% in the first three
months of the year, ahead of expectations of 3.5%, and up from a
1.8% rise the previous quarter.
This figure is closely watched because it's a directly
comparable measure of how the company's products are selling.
"We show strong momentum across all geographies with continued
strengthening of our competitive position," said Chief Executive
Paul Polman.
The maker of Ben & Jerry's ice cream, Dove soap and Lynx
deodorant said the first-quarter sales increase was driven by a
7.6% rise in volumes with prices down 3.3%.
Shore Capital analyst Clive Black described the update as
"fabulous" and "very reassuring." Volume growth was very strong, he
said and "of the highest quality we can expect." On a conference
call with analysts however, Polman warned against reading too much
into the positive update. "We continue to believe the recovery will
be long and drawn out," he said.
Huge amounts of deleveraging were needed in the developed world,
which will likely limit consumer spending for some time, he said,
while developing markets have returned to growth but not at 2007
levels.
"We do not expect the environment to get better and we do expect
competition to get tougher," he said, "so please don't run ahead of
yourself."
"Don't smoke too much pot, and stay realistic," the Dutch CEO
added.
All the same, the market welcomed the update and by 0821 GMT,
Unilever's shares were up 65 pence, or 3.4% at 1981 pence.
Volume growth has been Polman's top priority since taking the
helm in January 2009. Consumer goods companies always have to
strike a balance between volumes and prices when driving sales and
profits. Prior to Polman's arrival, Unilever was criticized for
allowing volumes to slip as it aggressively raised prices.
Polman said prices would begin rising again, but only at the end
of 2010 as the competitive environment toughened.
He said he would have liked to have seen some price rises in the
quarter but that increased competitive activity, particularly in
emerging markets, had limited Unilever's ability to raise
prices.
He said that in the longer term, Unilever could beat new
entrants in emerging markets."Battles over time are won by branding
and innovations," he said, "we know how to deal with it."
Unilever's operating margin was up 0.6 percentage points in the
period to 15.2%, helped by the sharp drop in commodity prices in
the past year, which has allowed Unilever to increase investment in
marketing while still growing sales and margins. Polman said
commodity costs would be broadly neutral in the second quarter but
would begin to rise again in the second half. He said the group's
full-year guidance for a 2%-3% commodity cost increase would remain
unchanged.
Shore's Black said the commodity cost outlook and the warnings
of sluggish economic activity were "all factors to keep our feet on
the ground."
Total sales grew to EUR10.14 billion from EUR9.51 billion while
net profit was EUR973 million, up from EUR731 million.
-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278;
michael.carolan@dowjones.com
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