Unilever PLC (UN, UL) said Thursday that its sales growth continued to slow in the first quarter, with volumes once again declining, and said it would step up its innovation program in the second quarter to arrest the fall in volumes.

The maker of Ben & Jerry's ice cream and household products such as Dove, Lynx and Cif posted a 1% drop in sales from continuing operations to EUR9.5 billion in the first three months of the year.

Stripping out acquisitions, disposals and currency movements, underlying first-quarter sales growth - a keenly watched figure - was 4.8%, down from 7.3% for the previous quarter and slightly ahead of analysts' estimates.

"First-quarter results were solid given today's trading environment," said Chief Executive Paul Polman, a former Nestle SA (NESN.VX) executive, who replaced Patrick Cescau at the turn of the year.

"We have made good progress implementing plans to reignite volume growth, building on existing strengths and correcting competitive gaps," he said.

Investors welcomed the news. At 0708 GMT, Unilever shares were up 4.4% or 58 pence at 1372p in a broadly higher London market.

The 4.8% rise in first-quarter sales was purely a result of price rises - made to offset commodity cost inflation. Volumes in the period actually fell 1.8%, compared with a 1.6% fall the previous quarter.

CEO Polman has made tackling the volume decline a key priority this year.

"We will further step up innovation and brand support from the second quarter and expect this to drive an improved volume performance," he said.

"This will be achieved while protecting cash and margins for the year."

Shore Capital analyst Darren Shirley was encouraged that Polman's commitment to growing volumes will not be at the expense of margins.

In February, the company disappointed the market by scrapping its sales and profit targets, citing the uncertain economy and said it would be inappropriate to give an outlook for 2009. It didn't provide an outlook Thursday.

Unilever previously had a long-term target of growing organic sales by between 3% and 5% annually and was targeting underlying operating margin of 15% or above by 2010, compared with 14.6% in 2008.

Operating margin dropped 30 basis points in the period - slightly less than feared, while gross margin was down 190 basis points due to higher commodity costs.

Uncertainty surrounding the company's sales and profit prospects have seen the group's shares decline 23% in the past year.

Western Europe was Unilever's worst performing region, with sales down 2.8% and volumes down 3.7%.

"Market growth has been more affected by the global economic downturn than the rest of the world," the company said. Sales in Western Europe were hit by customers trading down to retailers' own label products, it said. Innovation will be stepped up in the region in order to arrest the volume declines.

The Asia Africa region and the Americas region meanwhile grew sales 9.5% and 7.2% respectively - though this was entirely due to price rises.

Net profit for the first quarter dropped 45% to EUR731 million from EUR1.34 billion. Profit was reduced by restructuring costs, while last year's figure included profits from businesses since sold off.

Company Web site: www.unilever.com

-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com