UN Unilever NV

Unilever PLC (ULVR.LN) Thursday said economic weakness and high costs remain challenging, even as the consumer goods giant posted a consensus-beating rise in sales, driven by price increases and volume growth in emerging markets.

Purchases of ice cream, tea, cleaning products, deodorants and shampoo in the booming economies of Asia, Africa, Latin America, the Middle East and Eastern Europe are fueling growth, in contrast with softer performances in Western Europe and North America, as the globalized industry shifts eastwards.

The company, like its peers, faces a challenging outlook in mature markets from industry competition and pinched pockets as tax increases, spending cuts, below-inflation pay rises and unemployment squeeze shoppers' spending.

Unilever, which competes with U.S.-based Procter & Gamble Co. (PG), Swiss food giant Nestle SA (NESN.VX) and French dairy company Danone SA (BN.FR), is also raising prices in selected markets to mitigate against sluggish volumes and the impact on margins of higher costs of commodities like crude and vegetable oil.

"The external macro-economic environment remains difficult and higher input cost headwinds persist," Chief Executive Paul Polman said.

The Anglo-Dutch maker of Ben & Jerry's ice cream and household products such as Dove and Cif said first-quarter sales, stripping out acquisitions, disposals and currency movements, rose 8.4% compared with a year earlier, ahead of a company-produced analyst consensus forecast of 6.4%.

This measure of sales, which compares with a rise of 4.3% a year earlier and a 6.6% increase in the previous three months, is a closely watched, directly comparable measure of how the company's products are selling.

On the same basis, emerging markets sales rose 12%, with those in developed markets up 4.2%. North America sales increased 5%. Europe sales nudged 5.1% higher, but on weak comparatives.

Unilever's recent performance echoes those of its rivals. Earlier this month, Nestle posted a 7.2% increase in first-quarter sales, while Danone recorded a 7.6% rise. P&G reports its third-quarter results on Friday.

The company's total sales in the quarter rose 12% to EUR12.1 billion compared with a year earlier.

"Our performance is pleasing given struggling economies, continued fragile consumer confidence and competitor activity," Chief Executive Paul Polman said in a statement.

Still, the group noted the quarter was also boosted by an early Easter and an extra leap year trading day.

First-quarter volumes, stripping out acquisitions, disposals and currency movements, rose 3.5%, compared with 2.5% growth recorded in the same period last year.

First-quarter prices rose 4.7% as the consumer goods giant passed on higher costs to consumers.

At 0832 GMT, Unilever's shares were up 65 pence, or 3.1%, at 2144 pence, the highest gainer on the FTSE 100 index.

Shore Capital analyst Darren Shirley said the update is "excellent" and that strong trading momentum is boosting sentiment on the stock.

The company recommended a dividend of EUR0.24, up 8% compared with a year earlier.

It said it is on track to deliver a "modest improvement" in full-year core operating margin, weighted toward the second half of the year.

Unilever reiterated its guidance of profitable volume growth, steady and sustainable core 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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