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Last updated: October 25, 2012 8:29 pm
Unilever, the consumer goods company, outpaced its US peers Procter & Gamble and Colgate-Palmolive, reporting year-on-year underlying sales growth of 5.9 per cent in the third quarter to €13.4bn.
The maker of Flora margarine and Dove shampoo lifted European sales 0.9 per cent on the same basis, despite the continent’s economic weakness.
However, Unilever was obliged to push down prices in the promotion-driven market, offsetting volume growth.
But while sales of personal care and household goods surged ahead, food shrank. Foods contributed slightly more than a quarter of group turnover at €3.6bn. Including ice cream and beverages, the proportion is just shy of half. That ratio has been falling, in part due to more mergers and acquisitions in personal care.
The company attributed the contraction in foods to high prices in the spreads business, which dented volumes. It said it had already moved to more competitive pricing in some markets and seen volumes improve.
Paul Polman, chief executive, said Unilever remained on track to deliver a modest improvement in core operating margins, but warned the outlook remained grim.
“Looking forward, it’s clear the environment will remain challenging. Commodity cost inflation is high and remains volatile and there’s no sign that the level of competition will ease,” he said.
Analysts hailed the numbers, which beat their estimates.
Graham Jones of Panmure Gordon Graham Jones, of Panmure Gordon, said the figures “provide further evidence of a company on the up”. He pointed to the growth in emerging markets, including 13.7 per cent in Latin America.
The numbers will put pressure on rival Reckitt Benckiser , maker of Vanish and Nurofen painkillers, which has pledged to beat overall market growth – which it puts at the top end of 1-2 per cent – by 200 basis points.
Warren Ackerman, analyst at Société Générale, said: “There is no denying that Unilever’s momentum in the business, especially home care and emerging markets, is fantastically strong. But they trade at a premium to the sector, and I would like to see them converting that fantastic top-line growth into a stronger margin and bottom line.”
Flora may be good for your heart, but how about your investment? Unilever’s spreads business, worth an estimated 8-10 per cent of turnover, dragged down the foods segment. Excuses about pricing – essentially increasing prices ahead of rivals and thus losing sales – do not wash.
This is not least because the company has used them before. There are those who would love to see Unilever hive the business off, but it generates superior profit margins and throws off cash to fund all those high-growth emerging markets and personal care businesses.
For a company that – for all its glowing top-line growth – is forecasting merely “modest” margin expansion, margarine looks like a decent staple to have in the cupboard.
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