23rd Oct 2014 08:12
LONDON (Alliance News) - Anglo-Dutch consumer goods giant Unilever PLC Thursday reported a further weakening in trading, as market growth continued to slow in emerging markets, particularly in China, and its European markets continued to be hit by volume and price declines.
The company said revenue declined 2.0% to EUR12.2 billion in the three months to end-September, with currency movements taking 2.6% off the figure, and following the sale of its North American pasta sauces business and its Slim-Fast brand earlier in the year. Still, the figure was an improvement compared with the first nine months of the year, when revenue declined 4.3% to EUR36.3 billion including a 6.6% currency movement hit.
However, underlying sales and volume growth slowed in the third quarter. Underlying sales growth was 2.1%, compared with 3.2% growth for the whole nine months, while volume growth in the quarter was just 0.3%, compared with growth of 1.4% in the first nine months of the year. Pricing was up 1.8% in both the third quarter and the nine-month period.
Unilever shares were down 3.4% at 2,446.92 pence Thursday morning, as the third quarter figures missed analyst expectations, with the market hoping for underlying sales growth of 3.7%. It is one of the worst-performing stocks on the FTSE 100 on the day.
"Market growth slowed in emerging countries and particularly in China where we also experienced substantial trade de-stocking. Europe saw price deflation and poor summer weather compared with last year but conditions in North America started to improve," Chief Executive Paul Polman said in a statement.
Unilever, the maker of consumer products including Dove soaps and Ben & Jerry's ice cream, said spreads and ice cream were the key culprits behind weaker trading in China, overshadowing some better trading news in North America.
The CEO warned that the company expects markets to remain tough for at least the remainder of the year, and said it has further accelerated its initiatives to cut costs and simplify the business.
"We are confident that we will achieve another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow," Polman said.
Unilever said it does not expect any "material" improvement in its trading markets for the remainder of the year, and expects the trade de-stocking in China to be largely complete by the end of 2014.
"Full year core earnings per share will be underpinned by the actions we are taking to drive core operating margin and by actions taken to strengthen the financial items below operating profit," it said.
In Asia, 3.1% in underlying sales growth in the third quarter was mainly held back by declines in China.
"Elsewhere [in the region] we grew ahead of our markets and saw strong performances particularly in Turkey, Indonesia and the Philippines. Throughout the region we continued to extend the distribution of our products into new geographies," the company said.
Sales growth in North America was marginal, as volume growth was offset by price reduction in that market, while Latin America sales grew 2.4% driven by "price and supported by positive volume growth", it said.
"Consumer confidence has been impacted by economic uncertainty and price inflation primarily due to the impact of weaker currencies. Argentina managed to hold volumes despite the difficult economic situation and we saw good growth in Colombia," Unilever said.
Unilever said Europe remains its weakest region.
"Europe had a difficult quarter as we saw price deflation in many markets such as France, Germany and the United Kingdom. Ice cream and spreads were the main sources of the decline across most of the region, partially offset by a good performance in Home Care. Spain delivered another quarter of growth as a result of improving market conditions and our actions to sharpen in-market execution," it said.
The group said it saw good performances from its Home Care and Personal Care divisions, but its Food unit continued to decline due to spreads.
Revenue in the first-half of the year declined, hit by the slowdown in emerging markets and the fact that developed markets, like Europe, failed to pick up. Yet its interim profit still rose, as "innovative" new product launches, cost-cutting across the business, and price increases helped improve its margins.
Unilever's woes echo fellow FTSE 100-listed Reckitt Benckiser, which earlier this week revealed that sales growth slowed in the third quarter, held back by sales in emerging markets, while reported figures were hit hard by the current strength of sterling. It reiterated its full year targets for both revenue and margin growth, but said revenue will come in at the "lower end" of its 4% to 5% range, excluding its soon-to-be demerged Pharmaceuticals unit.
Unilever sold its North America pasta sauces business, including the Ragu and Bertolli brands, earlier this year to Japanese condiments maker Mizkan Group, in a deal worth USD2.15 billion. Soon after, it also sold its Slim-Fast brand to Kainos Capital, although it still holds a minority stake in the business.
By Steve McGrath and Rowena Harris-Doughty; [email protected]; @stevemcgrath1; [email protected]; @rharrisdoughty
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