UN Unilever NV

Unilever PLC (UL) Thursday warned of a difficult year ahead in a struggling global economy as the consumer products giant posted only a slight rise in full-year net profit despite increased sales, higher prices in selected markets and volume gains in booming emerging economies.

Purchases of ice cream, tea, cleaning products, deodorants and shampoo in the growth economies of Asia, Africa, Latin America, and the Middle East are more than offsetting weaker sales in debt-laden Western Europe and the U.S. though signs of moderating growth are appearing, the company said.

Unilever faces a challenging consumer outlook in its mature economies, where shoppers' disposable income is under pressure from rising unemployment, below-inflation pay rises and austerity measures such as tax hikes and public spending cuts.

"The global economy is still in poor shape. Consumer demand in Europe and North America was sluggish in 2011. Even in emerging [economies], there are signs of softening in some of our important markets," Chief Financial Officer Jean-Marc Huet told reporters. "Inflationary pressures remind us of 2008. It really has been a high level," he added.

The Anglo-Dutch company is the second-largest maker of branded household products by revenue after U.S.-based Procter & Gamble Co. (PG) and is behind food products such as Ben & Jerry's ice cream, Knorr soup and Bertolli olive oil spreads and household products such as Dove soap, Lynx aftershave and Cif cleaner.

Net profit for the fiscal year rose to EUR4.25 billion from EUR4.24 billion in the same period a year ago. Sales rose 5% to EUR46.47 billion from EUR44.26 billion.

Fourth-quarter sales excluding acquisitions, disposals and currency movements grew 6.6%, missing a company consensus of forecasts that predicted 6.8% growth. This compares with a 5.1% rise in the same period a year ago and a 7.8% increase in the previous three months.

Volumes, stripping out acquisitions, disposals and currency movements in the quarter rose only 0.1%, down from 5.1% growth last year and a 1.9% increase in the third quarter. Volume growth was 1% adjusted by the impact of sales in North America, the company said.

At 0813 GMT, Unilever's shares were down 54 pence, or 2.6%, at 2031 pence in a modestly lower London market.

"The first look is disappointing," Espirito Santo Investment Bank analyst Nuno Brito Cunha said.

Unilever's operating margin in the full year, excluding restructuring, disposals and other exceptional items, fell to 14.9% from 15% last year. The company warned in November of flat to lower margin in the fiscal year.

To combat commodity costs of oil, palm oil, petrochemicals and plastics, the company, which also competes with Switzerland's Nestle SA (NESN.VX), is streamlining packaging, paring its logistics, sourcing and purchasing costs, and selectively increasing prices to stem margin losses. The price of its products rose 6.5% in the fourth quarter, compared with a 5.8% increase in the third quarter.

"Commodity costs are not at the same level as last year, [but] I don't think we are going to see a reverse," Huet said.

P&G last week posted a 4% rise in net sales to $22.1 billion for its fiscal second quarter, and said its operating profit growth will accelerate as input costs ease.

Unilever proposed a quarterly dividend of EUR0.225 a share, payable in March, and reiterated its guidance of profitable volume growth, steady and sustainable underlying operating margin improvement and strong cash flow.

-By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; simon.zekaria@dowjones.com

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