BackUnilever stock slumps after weak demand hits sales and growth
Unilever has struggled to keep up with shoppers turning to niche and more local alternatives this fiscalThe stock fell as much as 6.6% in Amsterdam on Tuesday, the steepest intraday decline in almost three years
PremiumLondon: Unilever slumped after Chief Executive Officer Alan Jope backed away from his predecessor’s growth targets as consumers around the world jilt mainstream brands.
The maker of Ben & Jerry’s ice cream and Dove soap said sales gains will be slightly below guidance for 2019 and in the lower half of its multiyear range of 3% to 5% in 2020.
The stock fell as much as 6.6% in Amsterdam on Tuesday, the steepest intraday decline in almost three years. Analysts at RBC Europe said the new outlook implies fourth-quarter growth will be the Anglo-Dutch company’s weakest for more than a decade.
Like other mainstream consumer-goods companies, Unilever has struggled to keep up with shoppers turning to niche and more local alternatives, as well as retailers' own-brand products. In the third quarter, the company cited disappointing sales of ice cream in Europe and black tea across the developing world as growth missed estimates. In its latest update, the company cited weakness in South Asia, West Africa and North America.
The slowdown follows a changing of the guard, with Jope succeeding Paul Polman at the start of the year and Chairman Marijn Dekkers announcing last month that he was stepping down to make way for Danish businessman Nils Andersen.
The cut to the forecast undermines Jope’s earlier decision to maintain his predecessor’s outlook. It also clouds his ambition to prove that companies that emphasize social purposes can outperform rivals that don’t.
Outlook Change
The company had previously said that 2019 sales would be in the lower half of the muliyear range. Unilever said the change to the outlook won’t affect profitability.
“Growth remains our top priority and we are confident we have the right strategy and investment in place to step up our performance," Jope said in a statement.
India and West Africa contributed the most to the slowdown, Unilever executives said on a call. The Indian market, the company’s second-biggest after the US, should start to recover in the second half of 2020, it said.
Slowing consumption in India, home to more than 1.3 billion people, is weighing down makers of everything from shampoos to cars as the third-largest Asian economy expands at the slowest pace in six years.
Unilever owns a 67% stake in the listed subsidiary Hindustan Unilever Ltd., India’s largest consumer-products company. The unit cited the market slowdown and supply chain disruptions in an October 14 earnings call, with Chief Financial Officer Srinivas Phatak telling analysts that the “near-term demand outlook continues to be challenging."
India Slowdown
“We are very strongly developed in South Asia, so when India takes a slowdown, we definitely feel it more than some of our competitors," Jope said on the conference call with reporters on Tuesday. “We are far from crisis conditions. It’s just a little more turbulent than we’ve previously seen."
Unilever is accelerating the pace of cost cuts so it can reinvest more in its brands, with next year focused on new product releases, Jope said.
While ice cream had a difficult third quarter in the US, it has been performing better and isn’t a reason for the outlook change, according to the company.
Unilever said it’s on track for its 2020 profitability goals and expects to regain lost market share in North America.
To compensate for shoppers’ pullback from mass-market brands, Unilever has acquired small products in highly profitable niches. These include Tatcha, which makes creams based on a foundation of green tea, rice and algae, and Graze, a UK producer of healthy snacks. The company also sold its margarine and spreads business for about 7 billion euros ($7.8 billion) in 2017 to private equity firm KKR after years of underperformance.
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This story has been published from a wire agency feed without modifications to the text.
