Unilever Q1 sales up but costs hurt margins

AP News
Posted: Apr 28, 2011 4:48 AM
Unilever Q1 sales up but costs hurt margins

Unilever PLC, the maker of Dove soap, Lipton tea and Ben & Jerry's ice cream, reported Thursday that strong demand in emerging markets helped sales rise 7 percent in the first quarter, but predicted sharper rises in commodity costs will hurt profit margins this year.

Sales increased to euro10.9 billion ($16.1 billion) from euro10.1 billion in the same period a year earlier. Input costs, however, are now expected to rise by at least 5 percent in 2011, up from an earlier forecast of 4 percent, the company said.

Unilever did not report quarterly earnings but only intended to update markets on how its businesses were performing, a change in practice it said was to make investors focus more on long-term goals.

The company expects operating margins to be hurt by the higher raw materials costs in the first half before recovering in the second half, but did not give specific numbers.

Shares fell 2.9 percent to euro22.29 in early Amsterdam trading.

"The group's outlook statements underscore the uncertainties regarding its margin performance this year," said analyst Richard Withagen of SNS Securities in a note on the earnings. "Margin pressure will be more intense, while price increases will result in lower volume growth." He rates shares "Reduce."

CFO Jean-Marc Huet said the "overall trading environment in the U.S. does remain very competitive and the consumer ... remains very sluggish." He said the company was winning market share in personal care products, but the market for food products was "challenging."

"Some of our competitors have not yet followed in terms of price increases in spreads, or to some extent, ice creams," he said on a conference call with analysts.

Unilever said that "underlying sales growth" _ a nonstandard measure that strips out the impact of acquisitions and currency effects _ was 4.3 percent in the first quarter, with volumes up 2.5 percent and prices up 1.8 percent.

CEO Paul Polman said this "good performance" was achieved despite rising commodity costs, which Unilever has tried to pass on to customers through price hikes, and weak consumer confidence.

The company said it hopes to cut euro1.3 billion in costs this year, up from an earlier estimate of euro1 billion, in an attempt to preserve margins.

"We have continued to deliver volume growth, albeit at a lower rate than in recent quarters, reflecting the pricing action taken, and the sluggishness of the developed markets," Polman said in a statement.

By geography, underlying sales were up 8.9 percent in Asia and Africa and 4.1 percent in the Americas, which includes South America. They fell 2.7 percent in Western Europe, with volumes down 2.8 percent and prices up 0.1 percent.

By business line, laundry and personal care products both grew above 5 percent, with brands such as Dove, Axe and Rexona launching new products and Cif soaps performing well in Asia.

The company's ice cream and beverages business grew 4.7 percent, helped by gains made by the Magnum brand in the U.S. and Indonesia. Its soups and dressings arm, known for products such as Knorr soups and Hellmann's mayonnaise, showed the weakest growth, with volumes down slightly as the company hiked prices to compensate for higher raw materials costs.

Unilever said in a statement Thursday the company will increase its quarterly dividend by 8.2 percent to euro0.225.