Unilever escapes bleeding due to emerging markets

LONDON - Reuters

Unilever Chief Executive Officer Paul Polman. EPA photo

Strong emerging markets helped consumer goods giant Unilever avoid issuing similar profit warnings as two of its main rivals, although it did warn of tougher times ahead due to difficult economies and volatile input costs.

The maker of brands such as Dove and Knorr is facing tough trading in southern Europe and seeing some commodities costs edge up. However, it stuck to its 2012 targets rather than alarm investors like Danone and Procter & Gamble.

Unilever, with annual revenues of 46.5 billion euros ($56.4 billion), said second-quarter underlying sales rose 5.8 percent helped by its lower exposure to problem economies, such as Spain, than Danone, while it has more business in fast-growing markets like India and Indonesia than P&G.

Further deterioration risks

“The macro economic situation is difficult and shows signs of further deterioration and there is volatility in commodities, but we still expect to deliver a modest improvement in operating margins for 2012,” Finance Director Jean-Marc Huet told a conference call on the quarterly results on Thursday.

The 5.8 percent rise beat a company-compiled consensus of 4.8 percent and came after a first-quarter increase of 8.4 percent and 6.5 percent growth for 2011. Emerging markets, which make up 55 percent of sales, saw growth of 11 percent.

Unilever shares rose 4 percent to 2,227 pence by 0803 GMT to be the third biggest riser in a largely flat FTSE 100 index after the stock had risen around 7 percent since the start of June. “We had hoped that Unilever could sail smoothly through 2012 despite macro volatility and challenges, unlike some of its major peers especially Danone and P&G, and this seems to have been confirmed in both the reported results and the reiterated 2012 guidance,” said analyst Andrew Wood at Bernstein Research.

 Other analysts said Unilever was helped by its larger exposure to emerging markets than its rival and a strong performance from its personal care business with quarterly sales up 10.4 percent led by products such as Dove and Clear shampoo. European sales fell 2.2 percent in the quarter, but Huet said euro zone crisis-hit southern European economies accounted for less than 4 percent of total group sales, and although sales there were down this was partially offset by good performances in Britain, Germany, France and the Netherlands. Unilever, the world’s No.3 consumer goods group after Nestle and P&G, held its forecast for modest profit margin expansion this year. Its half-year profit margin was flat, but analysts expect it to rise in the second half.