Unilever Flags Tough Conditions as Revenue Declines -- 2nd Update
26 Januar 2017 - 11:37AM
Dow Jones News
By Saabira Chaudhuri
LONDON-- Unilever PLC disappointed investors on Thursday,
warning of a difficult start to the year while reporting lower
sales for 2016, driven by volatile currencies combined with a
slowdown in its refreshments and home-care arms.
The consumer-goods giant, whose brands include Hellmann's
mayonnaise, Dove soap and Ben & Jerry's ice cream, reported a
5.5% rise in net profit from a year earlier to EUR5.5 billion
($5.91 billion) in 2016. Revenue fell 1% to EUR52.7 billion, hit by
a negative currency impact, although it climbed 4.3% at constant
exchange rates.
Unilever's shares were down 4.4% in Thursday morning trading in
London.
Volumes in the final quarter of the year declined 0.4%, coming
in negative for the second quarter in a row and missing analyst
estimates. The company has turned to driving sales growth through
price increases lately, a strategy generally seen as less healthy
by investors than growing volumes since it depends on trading
customers up to more expensive products rather than attracting new
ones.
Liberum analyst Robert Waldschmidt offered a bearish view on the
company, saying Unilever will have to move to shore up volumes by
cutting prices in emerging markets despite higher raw material
costs.
"The tough market conditions which made the end of the year
particularly challenging are likely to continue in the first half
of 2017," said Chief Executive Paul Polman.
The results contrast with a strong performance from rival
Procter & Gamble Co., which last week offered a more upbeat
outlook for sales growth this year. P&G, which makes Gillette
razors and Pampers diapers, has for years been slashing costs and
reworking how it develops, markets and sells consumer staples in an
attempt to accelerate growth.
Unilever has taken its own hard line on costs, adopting
so-called zero-based budgeting, where companies justify each year's
expenses from scratch, and has made changes to its organization to
help it quickly adapt to local insights while also benefiting from
having global scale in areas such as procurement.
The Anglo-Dutch company said volumes had been weak as consumers
and retailers adjusted to devaluation-led cost increases, blaming
Brazil's economic crisis and the recent demonetization in India for
hindering its performance.
Emerging markets--which make up the bulk of Unilever's
sales--logged growth of 6.5%, a slowdown from 7.1% reported a year
earlier.
The company turned in a lackluster performance in developed
markets, where it reported flat underlying sales growth as volume
growth in North America was offset by price deflation in Europe.
Unilever flagged what it described as an "intense" promotional
environment in North America, particularly in hair products, where
its sales declined.
Bernstein analysts described the performance by Unilever's
personal-care, refreshments and home-care arms as "quite
disappointing" in the fourth quarter, noting that only
foods--typically a slow-growing business for the consumer goods
giant--beat expectations.
For 2016, the personal-care arm reported 4.2% underlying sales
growth, roughly flat with the 4.1% reported for 2015. In home care,
Unilever reported 4.9% growth, compared with 5.9% last year. In
refreshments--made up of tea and ice cream--Unilever reported
underlying growth of 3.5%, compared with 5.4% last year. The food
arm was a relative bright spot, logging growth of 2.1%, up from
1.5% in 2015.
However, sales continued to decline in Unilever's spreads
business, as modest growth in emerging markets was offset by a
continued decline in the developed world, where people are eating
less bread and butter has made a comeback.
The company has shifted gears in spreads, carving it off to sit
in a new division called the baking, cooking and spreads unit in
2015, and recently rebranding its "I Can't Believe It's Not Butter"
vegetable fat spread to "I Can't Believe It's So Good for
Everything."
Despite margarine's declining appeal with consumers in developed
markets, Unilever has insisted it won't sell its spreads business,
saying it is highly cash generative and maintained no interested
parties are willing to pay the price it would want for the
unit.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
January 26, 2017 05:22 ET (10:22 GMT)
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