London: Consumer goods giant Unilever warned of rising pressure from rivals and higher commodity costs as it narrowly missed forecasts with a 3.6% rise in second-quarter sales despite strong emerging market growth.
Chief executive Paul Polman said robust growth in developing markets helped offset sluggish performances in Europe and North America, but cautioned on Thursday that the second half would see heightened competition and raw material prices rising again.
Anglo-Dutch Unilever Plc/NV, the maker of Ben & Jerry’s ice cream, Knorr soup and Dove soap, added that operating margins edged ahead only 0.1 percentage point to 14.7% as competition from rivals remained fierce.
“We do not expect competitive pressures to ease and our ability to increase prices will remain constrained despite rising commodity costs in the second half,” Polman said in a results statement.
Polman is assuming slow economic growth ahead, especially in develped markets where consumer confidence is fragile, but he is sticking to his target to see profitable sales volume growth and increased margins for 2010 as a whole.
Unilever Plc shares dipped 2.4% to 17.87 pounds by 0705 GMT as sales and margins came in below forecasts and due to its cautious words about the second half, analysts said.
Polman has led Unilever’s revival over his 18-month tenure based around strong growth from emerging markets and trying to reignite growth in more mature markets. His strategy has been to cut prices and raise marketing spending and look for volume-led growth and higher profit margins.
The world’s third-biggest food and consumer goods group reported underlying second-quarter sales rose 3.6%, below a consensus of 3.9% in a Reuters poll of 12 analysts and versus 4.1% in the previous second quarter.
Unilever’s underlying quarterly earnings rose 38% to 0.36 euros per share, compared to a consensus forecast of 0.37, helped by cost cutting and lower commodity costs. Operating margins of 14.7% were below 15% forecasts.
It proposed a quarterly dividend of 0.208 euros per share.
Unilever’s rivals such as Procter and Gamble and Colgate Palmolive have suffered as they have had to raise spending to attract value-seeking shoppers and analysts say this tough competition is not likely to ease quickly.
European rival Reckitt Benckiser saw the first fall in quarterly European sales for a decade while Henkel reported lower detergent margins due to the high promotional spend needed to stay competitive..
Unilever Plc shares have underperformed the FTSE 100 index by 7% and DJ European Food and Beverage index by around 10% so this year due to concern about mounting pressure in the second half.