Unilever Results Disappoint as Hurricanes Hit U.S. Sales -- Update
October 19 2017 - 3:00AM
Dow Jones News
By Saabira Chaudhuri
LONDON -- Unilever PLC on Thursday reported weaker third-quarter
revenue growth as the maker of Breyers ice cream and Dove shampoo
struggled with lower sales in developed markets.
Unilever's sales for the third quarter climbed just 2.6% on an
underlying basis to EUR13.2 billion ($15.56 billion) driven mostly
by price rises. That's a slowdown from a year ago when Unilever
reported growth of 3.2% and is also sharply below the 3.9% analysts
were expecting.
Shares in the company traded down 3% in early trading in
London.
Like its peers, Unilever -- which also owns Axe deodorant and
Lipton tea -- has been suffering through a double whammy of
headwinds. Consumers in major, developed markets are abandoning the
big brands Unilever has for decades relied on for steady growth,
increasingly opting for niche, organic, local brands they see as
more desirable. In emerging markets, Unilever and others are facing
more competition from increasingly sophisticated local players
while coping with macroeconomic disruptions in big markets like
India and Brazil.
The tumult has attracted activist investors like Nelson Peltz to
Procter & Gamble Co. and Dan Loeb to Nestle SA, and created an
opening for Kraft Heinz Co. earlier this year to approach Unilever,
which rejected a $143 billion acquisition attempt. On Wednesday,
consumer-goods giant Reckitt Benckiser PLC said it would split into
two separately managed divisions in an attempt to jump start
growth, a move analysts say opens the Slough-based owner of Durex
condoms up to activist pressure to eventually sell one of the
divisions.
In developed markets, Unilever said underlying third-quarter
sales fell 2.3%, driven by a 2.9% drop in North America, where the
company said it was hurt by hurricanes in Florida and Texas, its
second and third biggest states by sales. Natural disasters in the
Caribbean also took a toll.
"There's really no growth in the U.S. business," Unilever Chief
Financial Officer Graeme Pitkethly said in an interview. "But the
big one-off impact that caused us to miss against consensus this
quarter were the hurricanes in Florida and Texas."
Earlier Thursday, Nestle reported organic sales growth of 2.6%
for the first nine months of the year, a slowdown from the 3.3% it
reported a year earlier. Nestle, like Unilever, flagged flat sales
in North America where it said the environment was difficult.
For Unilever, emerging markets were a bright spot, with
underlying sales up by 6.3% helped by improvements in China and
India.
Unilever has made a string of acquisitions in high-growth areas
lately, agreeing to buy Weis ice cream in Australia, Pukka Herbs
tea in the U.K., Carver skin care in Korea, and Mãe Terra organic
food in Brazil. The acquisitions, while relatively small for a
company with a market capitalization of $180 billion, are one way
Unilever is trying to adapt to the rapidly changing landscape. The
company is also undertaking a restructuring aimed at helping it
compete better with local rivals in markets around the world.
The moves come as the Anglo-Dutch consumer goods giant tries to
raise shareholder returns after fending off Kraft in February.
Since then, Unilever has said it will look to sell or spin off its
spreads arm, where sales growth has long been declining. It has
also launched a share buyback and set a new operating margin target
of 20% by 2020.
For the third quarter sales declined by 1.6% on a reported
basis, with a 5.1% drag from foreign-exchange movements. Profit
figures weren't disclosed.
The company's homecare arm reported sales growth of 4.6% but
personal care, an area Unilever has been bulking up in, reported
growth of just 1.8%. The foods business reported a 1.5% rise in
sales, while its refreshment unit -- which houses tea and ice cream
-- rose 3.1%.
Unilever confirmed its annual guidance for underlying sales
growth of 3% to 5% for the year and a rise of at least 1 percentage
point in its underlying operating margin. But RBC analyst James
Edwardes Jones noted that achieving this guidance "looks like a
stretch" given the 2.8% sales growth Unilever reported for the
first nine months.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 19, 2017 03:45 ET (07:45 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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